Badger Meter, Inc. BMI, a leading provider of smart water solutions, has witnessed a share price decline of 7.7% year to date (YTD). This decline is steeper than the S&P 500 composite and the Instruments-Control industry’s decline of 2.3% and 2.2%, respectively.

Price Performance

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With a challenging start to 2025 for BMI, investors must be contemplating how to strategize their investment.

Challenges Loom Ahead for BMI

Rising expenses and intense competition amid broader market volatility remain concerns.

In the fourth quarter of 2024, selling, engineering and administration (SEA) expenses were $43.5 million compared with $39.4 million in the prior-year quarter. The rise was due to increased headcount, personnel-related expenses and costs linked to the acquisition of SmartCover. SEA was up 8.2% year over year in 2024. Increasing expenses amid a volatile global macroeconomic environment are likely to dent Badger Meter’s margins, thereby hurting its financial performance. 

Moreover, after registering double-digit revenue growth in all quarters of 2024, the company now expects to deliver high single-digit sales growth rates going ahead.

Given these factors, analysts seem bearish about the stock, which is evident from the downward revision in earnings estimates. In the past 60 days, analysts have decreased their earnings estimates for the current quarter by 1.8% to $1.08.

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BMI’s Premium Valuation & Bearish Technical Indicators

The BMI stock is trading at a significant premium, with a forward 12-month Price/Earnings of 40.63X compared with the industry’s 17.31X. While the company’s long-term growth potential justifies this premium to an extent, rising costs, competition and integration challenges warrant caution.

It is trading below its 50-day moving average, indicating bearish sentiment among investors. The stock closed at $195.75 in the last trading session, down 18.1% from its 52-week high of $239.11.

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BMI’s Positive Long-Term Outlook 

Demand for digital smart water solutions has been increasing, attributed to secular challenges in the water industry. This has been driving strong adoption of BMI’s differentiated smart water solutions, including higher uptake of meters (both mechanical and E-Series Ultrasonic), ORION Cellular endpoints and associated BEACON Software-as-a-Service revenues. 

In the last reported quarter, utility water sales rose 14% due to continued robust adoption across the BlueEdge suite by utility customers. In May 2024, the company introduced the BlueEdge framework to streamline its comprehensive suite of scalable water solutions. 

Badger Meter is continuously prioritizing and enhancing its presence in selected regional markets outside the United States that offer healthy growth potential. The company is likely to benefit by expanding its market share in water-related applications.

Regulatory pressures, aging infrastructure and climate-related extreme weather events are driving the adoption of smart water technologies, creating a favorable backdrop for BMI's products and services. Some macroeconomic factors, such as the need for replacement-driven demand, the rise of AMI adoption and increasing demand for real-time data visualization and analytics, are additional tailwinds. The company's long-term expected guidance of high-single-digit top-line growth is supported by a strong order book and pipeline of opportunities.

How to Play the BMI Stock?

Strong financial performance, strategic initiatives and favorable demand trends make BMI an attractive investment opportunity. Nonetheless, elevated macroeconomic volatility, increasing operating expenses and integration challenges remain concerns. Downward estimate revision activity and expensive valuation keep us on the sidelines. 

Therefore, we believe new investors should wait for a better entry point and existing investors should retain the BMI stock, which currently carries a Zacks Rank #3 (Hold). 

Stocks to Consider

Some better-ranked stocks worth consideration with the broader industry space are Digital Turbine, Inc. APPS, Freshworks Inc. FRSH and Five9, Inc. FIVN. While APPS sports a Zacks Rank #1 (Strong Buy), FRSH and FIVN presently hold a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for APPS’ fiscal 2025 EPS is pegged at 30 cents, unchanged in the past seven days. APPS’ earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 281.7%. Its shares have increased 34.9% in the past year. 

The Zacks Consensus Estimate for FRSH’s 2025 earnings is pegged at 52 cents per share, down 1 cent in the past seven days. FRSH earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 33.96%.

The Zacks Consensus Estimate for FIVN’s 2025 EPS is pegged at $2.61, unchanged in the past seven days. Five9’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 18.55%. 

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Badger Meter, Inc. (BMI) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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