Growth investors focus on stocks that exhibit above-average financial growth, as this characteristic often attracts market attention and delivers strong returns. However, identifying exceptional growth stocks can be challenging due to their inherent risk and volatility. Investing in a stock whose growth story has ended or is nearing its conclusion could result in significant losses. Fortunately, the Zacks Growth Style Score provides a valuable tool for uncovering cutting-edge growth stocks by analyzing a company’s true growth potential beyond traditional metrics.
Badger Meter (BMI) is a compelling example of such a stock, currently recommended by the Zacks system. The company boasts a favorable Growth Score and holds a top Zacks Rank, indicating strong growth prospects. Studies have consistently demonstrated that stocks with superior growth attributes outperform the market. Notably, stocks possessing both a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) tend to generate even higher returns.
Here’s a closer look at three key factors that make Badger Meter, a manufacturer of gas and water flow measurement products, an attractive growth investment:
Earnings Growth:
Earnings growth is arguably the most crucial factor, as surging profit levels are what investors seek. Growth investors favor double-digit earnings growth, often seen as a signal of strong prospects and potential stock price appreciation. While Badger Meter’s historical EPS growth rate stands at 19.1%, investors should focus on the projected growth. The company’s EPS is projected to grow by 29.2% this year, outpacing the industry average of 17.4% growth.
Cash Flow Growth:
Cash is the lifeblood of any business, but for growth-oriented companies, higher-than-average cash flow growth is even more critical than for mature businesses. Strong cash accumulation enables these companies to pursue new projects without resorting to expensive external funding. Currently, Badger Meter’s year-over-year cash flow growth is 30.2%, surpassing many peers and exceeding the industry average of 25.6%. While investors should consider the present cash flow growth, it’s worthwhile to examine the historical rate to gain context. Over the past 3-5 years, the company’s annualized cash flow growth rate has been 11.8%, compared to the industry average of 9.1%.
Promising Earnings Estimate Revisions:
Validating the superiority of a stock based on the metrics discussed above can be enhanced by analyzing the trend in earnings estimate revisions. A positive trend is favorable, as empirical research demonstrates a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Badger Meter has experienced upward revisions in current-year earnings estimates. The Zacks Consensus Estimate for the current year has surged 3% over the past month.
Bottom Line:
Badger Meter has not only earned a Growth Score of B based on factors like those outlined above but also carries a Zacks Rank #1 due to positive earnings estimate revisions. This combination indicates Badger Meter’s potential to outperform and makes it a solid choice for growth investors.
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