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Badger Meter's Q2 Performance and Growing SaaS Business
Badger Meter, a leading manufacturer of flow measurement, control products, and networking technologies, has recently reported its Q2 results, which reveal a mixed performance but a promising outlook for the future, particularly in its SaaS division.
The company's stock has experienced a 27% decline from its 52-week high, trading currently at 34 times Free Cash Flow (FCF). However, Badger Meter utilises only 25% of its FCF to pay dividends, leaving ample room for future increases. The company has demonstrated this capacity by raising its dividend payments by 18% this year and 26% last year, offering a 0.7% dividend yield whose payments have increased for 31 consecutive years.
One of the key growth areas for Badger Meter is its SaaS business. SaaS sales now account for 7% of the company's total revenue, and have seen a significant increase since 2019. While the company's overall sales growth rate is 14% over the same time, SaaS revenue has grown by an impressive 28% annually. This growth trend is expected to continue, as SaaS solutions become increasingly integral to Badger Meter's business model.
85% of Badger Meter's sales are replacement-driven, indicating a strong and consistent demand for its products. However, the lower profit margin in the second quarter is due in part to the ongoing integration of its acquisition of SmartCover, a move that is expected to bolster the company's long-term growth prospects.
Despite the integration challenges, Free Cash Flow grew by 19% in the second quarter, underscoring the company's financial strength. It's worth noting that Badger Meter has been a 74-bagger since 2000, and a 332-bagger since its initial public offering in 1990, demonstrating its long-term growth potential.
In other news, the German investment company DWS acquired ASML shares in August 20XX, making it the largest shareholder in the company. This investment further underscores the confidence that global investors have in Badger Meter's future growth prospects.
In conclusion, while Badger Meter's Q2 results show a mixed performance, the company's SaaS growth and long-term financial strength remain promising. The ongoing integration of SmartCover is expected to bolster the company's growth prospects in the long run, making Badger Meter an attractive investment opportunity for those seeking long-term growth.
