Badger Meter: The perfect business in the perfect end market, water meters are the definition of resilience

Who knew water meters was such a great business? Best in class earnings and execution with margin upside in a highly attractive growing market

Welcome to the 4th investment case and 4th resilience idea on Crack the Market (and the most comprehensive Badger Meter investment case you will find online)! Discover why this water meter company is one of the highest quality stocks in the market and one of the rare compounders in the water space. It is operating in the perfect industrial end market of water meters, combining an oligopolistic market with a fragmented customer base. This stock is the definition of resilience and has a decades of growth and visibility driven by a replacement cycle and mix-up business model.

Twice a week, I will release deep dives into stocks and sectors that fit into the three themes that I see winning in this age of tariffs and deglobalization: resilience, sovereignty & reshoring, China. I will then deep dive into the opportunities in the AI data center value chain.

Take advantage of this once in a generation opportunity to build long term wealth by investing in great stocks that will deliver returns for your portfolio for years to come.

You can already read my first 6 deep dives, all of which I see as winners in this new world of tariffs and deglobalization:

• ASML (reshoring & China idea): The most innovative company in the world will 2.5x its EPS by 2030.

• LKQ (resilience idea): The most defensive business in the auto industry is a tariff winner and could become a compounder.

• Atlas Copco (resilience & reshoring idea): The best industrials business in the world is on sale, extremely resilient and will benefit from US reshoring.

• Badger Meter (resilience idea): The perfect business in the perfect end market, water meters are the definition of resilience.

• Knorr Bremse (resilience idea): Who knew making brakes was this lucrative? Rerating with self help story and upside from German infra plan.

• Flex (reshoring idea): The electronics manufacturing giant building Nvidia’s servers and enabling reshoring is becoming a better business.

Subscribe for free if you want to receive my analysis of major events impacting stocks (like my recent article on how to play the tariff wars and deglobalisation or my recent article on US auto import tariffs and which companies are the winners and losers of this tectonic shift in the automotive world), a teaser for every future company article I publish (every week) and megatrend articles with the associated stocks (every month). For paying subscribers you will get 2 deep dives into companies every week (like this one), a megatrend analysis with a deeper breakdown and a granular analysis of the stocks exposed to the theme every month, and access to a me, a portfolio management professional, for your questions.

After reading this article, you will understand what this company does, why it is so defensive and of such high quality, why its best in class financials, execution and long term growth (20+ years) outlook makes it a great compounder and resilience idea in those uncertain times.

Badger Meter is arguably the one of the highest quality names in the market. It is a play on best in class earnings and execution with margin upside in a highly attractive growing market. The company's focus on Advanced Metering Infrastructure (AMI) and Software as a Service (SaaS) aligns with growing global demands for efficient resource management, propelled by increasing regulatory pressures and environmental sustainability concerns. The North America water meter market is extremely attractive given it is an oligopoly with a very fragmented and risk-averse water utility customer base where ~85% of demand is replacement driven. The North America water meter market will growth its organic sales at MSD-HSD% for the next 20+ year as water utilities slowly mix-up from legacy mechanical meters to connected static meters that can cost multiples more paired with modest pricing and installed base growth. Badger Meter's rapid SaaS growth (28% over 2019-24) should help create an even more resilient sales base that is also likely to push the company's margin above historical target levels (38-40% GM). Finally, Badger, which has always traded at an expensive multiple, has derated over the past few weeks (though it remains a premium valuation).

In this article I go through:

1. Badger Meter’s business and how the sector it operates in, water meters, is the best industrial end market.

2. Why the business model is so defensive, underpinned by a growth algorithm that will last decades built on resilient demand and a unique mix/ASP story.

3. Why the company‘s margins should bleed higher over the next few years thanks to a fast growing and margin rich SaaS business.

4. The management’s impressive track record of leading a best in class business (leading margins, FCF conversion/margins, ROIC, and sales growth).

Badger Meter Investment Case