Badger Meter: A 16% Dip in a 78-Bagger Stock

In the ever-changing landscape of the stock market, corrections can often be seen as opportunities for savvy investors to snatch up high-quality dividend growth stocks at more attractive valuations. As of March 22, 2025, the S&P 500 has dipped into correction territory, down 8% from its all-time high reached last month and 4% for the year so far. The Nasdaq Composite, which is heavily weighted towards technology stocks, is down nearly 12% from its recent highs. This market downturn has led to a significant pullback in many stocks, including dividend growth stocks like Badger Meter (BMI), which has sold off faster than the broader market despite its strong performance history.

Badger Meter, for instance, is down 16% from its highs in late 2024, making it one of its most significant pullbacks since 2011. This presents an opportunity for investors to capitalize on the lower valuations of high-quality dividend growth stocks. Badger Meter has been a 78-bagger since 2000, indicating strong long-term performance. Its technology-focused, end-to-end BlueEdge offering aims to modernize outdated water utilities, supported by megatrends such as aging infrastructure, higher quality and safety standards, stricter environmental regulations, water scarcity, and population growth.



Badger Meter's recent $185 million acquisition of SmartCover moved it into the wastewater and sewage monitoring market, making it the largest provider of sewer line monitoring in the United States with a market share of around 50%. This acquisition aligns with Badger Meter's solutions and creates an upsell opportunity as it continues to support its utility clients' ambitions to modernize their infrastructure. Management believes sewer monitoring is still in its "first inning of adoption," leaving a lengthy growth runway ahead.

Badger Meter's shift from physical meters to technology and software-as-a-service (SaaS) solutions has brought higher profit margins. Its SaaS revenue has grown by 28% annually over the last six years and now equals 7% of the company's total sales. This has led to a steady rise in the company's operating margin and return on invested capital (ROIC).

With 14 tuck-in acquisitions since 2010, Badger Meter continues to grow its revenue and technological prowess. This acquisitive strategy is expected to continue, further advancing the company's technological capabilities and market position.

Badger Meter's long-term performance and technological advancements position it for future growth despite the recent pullback. The company has been a 78-bagger since 2000, and its current pullback is one of the most significant since 2011. However, its leadership in smart water solutions, expanding into wastewater monitoring, ballooning profitability, and acquisitive strategy provide a strong foundation for future growth. As the company continues to innovate and acquire, it is well-positioned to capitalize on the megatrends supporting its business and deliver long-term value to shareholders.

In conclusion, Badger Meter stands out as a dividend growth stock due to its leadership in smart water solutions, expanding into wastewater monitoring, ballooning profitability, and acquisitive strategy. Its long-term performance and technological advancements position it for future growth despite the recent pullback. Investors should consider these factors when evaluating high-quality dividend growth stocks during market corrections and position themselves for long-term success.