Is BMI a good stock to buy?We came across a bullish thesis on Badger Meter, Inc. on Quality At A Fair Price's Substack by Longacres Finance. The thesis was published on August 25th, when the stock was trading at $136.36, and BMI gained 9.73% since then. The gain appears to reflect improving confidence in its recovery, supported by sequential sales growth, higher earnings, and the continued rollout of awarded utility water projects. In this article, we will summarize the bulls' thesis on BMI. Badger Meter, Inc.'s share was trading at $149.64 as of October 22nd 2026. BMI's trailing and forward P/E were 30.97 and 26.18 respectively according to Yahoo Finance.
This isn't the first time we see a water technology company pitched as a great investment. Unfortunately, BMI shares lost 20.10% of their value over the last 12 months. Comparable stocks like Itron and Xylem lost 35.14% and 26.30%, respectively, during the same period. Why are water technology stocks declining so much, and does BMI's recent rebound make this a good time to buy?
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In March, we published an article about the 11 Best Water Management Stocks to Buy . BMI is almost flat since then, but investors have taken a considerable detour to get here: the stock sank 22% through May before clawing back those losses. That leaves investors weighing whether the rebound marks a fresh start or simply a reprieve. This article explains why hedge funds were bullish on BMI. Before getting into our analysis, let's take a look at the business and why some investors like the stock so much.
Badger Meter, Inc. (NYSE:BMI) manufactures and markets flow measurement, water quality monitoring, control, and communication solutions, mainly smart water metering systems and software for utilities, municipalities, and industrial customers. Its biggest growth opportunity is the modernization of water infrastructure, as utilities adopt newer metering technology to work more efficiently, cut water losses, and manage aging systems.
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Badger Meter, Inc. also appeals to income-focused investors because it has paid dividends for more than 30 years and kept raising them. Its estimated future return is about 17.75%, which comes from its dividend, expected earnings growth of nearly 10%, and a 6.5% boost if the share price moves closer to fair value. Its dividend yield of 1.31% is also well above its five-year average of 0.79%, which points to a potential 40% discount based on dividend yield theory.
The bullish case rests on utilities continuing to invest in smart water infrastructure. As municipalities and industrial customers look for better ways to track water use, spot leaks, bill accurately, and manage resources, Badger Meter, Inc. stands to benefit from the shift toward connected systems. (see why Sandhill Investment Management sees technological advancements driving Badger Meter's long-term growth ) Its dividend growth supports the case too, with dividends growing at about 14% a year over the past decade and at an even faster 16% a year over the past five.
Badger Meter, Inc. depends on utilities continuing to adopt smart water technology and replace outdated systems. Because it serves essential water markets with steady demand from utilities, and manages its capital carefully, its growth looks built for the long term rather than tied to a short-term cycle. If municipalities keep prioritizing efficiency, bulls see room for lasting earnings growth and more dividend increases.
The company is also able to reward shareholders while still investing in growth. Badger Meter, Inc. has kept its payout ratio below its 10-year average in recent years, which leaves room for future dividend increases. Investors should still watch whether earnings growth keeps supporting the stock's valuation, since slower utility spending, delayed infrastructure projects, or weaker industrial demand could hold back growth.
Dividend growth remains one of the strongest parts of the investment case. A dividend record of more than 30 years, combined with growth that is speeding up, sets Badger Meter, Inc. apart from many industrial companies. The gap between its current yield and its long-term average suggests the shares may be priced attractively, but earnings growth will need to keep up to support further dividend increases.
The main risk for the stock is the potential cost of honoring long-term warranties on its installed meters. Utilities expect these products to work accurately for years, so defects could create expenses well after the original sale. Badger Meter warns that its products carry extended warranties and that defects could require recalls or additional warranty spending. A problem affecting a widely installed model could require replacements across many customer locations. Those costs could absorb cash otherwise available for product development and dividend increases. Damage to its reputation could also make future utility contracts harder to win. In our opinion, this could pressure Badger Meter's price multiples if supporting its installed base becomes more expensive than investors expect.
However, investor sentiment around the water technology group remains mixed. Hedge fund positioning shows a mixed signal. As per our database, 21 hedge fund portfolios held Badger Meter, Inc. at the end of the second quarter, down from 29 in the previous quarter. That is a clear pullback in institutional interest. Itron, Inc. (NASDAQ:ITRI) was held by 30 hedge funds, down from 38, and Xylem Inc. (NYSE:XYL) was held by 39, down from 46, while Watts Water Technologies, Inc. (NYSE:WTS) was held by 44, up from 40. The divergence suggests institutional investors showed the strongest increase in conviction toward Watts Water Technologies, Inc., while Badger Meter, Inc., Itron, Inc., and Xylem Inc. each saw reduced ownership interest, as funds adjusted water technology exposure based on growth expectations, restructuring opportunities, and valuation differences.
Short interest data also paints a fairly cautious picture for Badger Meter, Inc. and its peers. About 23.08% of Badger Meter, Inc.'s float is sold short, compared with 19.43% for Itron, Inc., 5.75% for Xylem Inc., and 3.65% for Watts Water Technologies, Inc. That puts Badger Meter, Inc. above Itron, Inc. and well above Xylem Inc. and Watts Water Technologies, Inc., which suggests some investors still question its valuation, growth expectations, or near-term execution.
Valuation Analysis
BMI's trailing P/E is 30.97x. Xylem Inc., Watts Water Technologies, Inc., and Itron, Inc. trade at trailing P/Es of 25.87x, 31.09x, and 15.27x, respectively. BMI's own trailing P/E was 37.19x on December 31, 2025, meaning its multiple has fallen approximately 17% since then. We believe the current valuation reflects expectations that smart-water infrastructure spending and recurring software revenue will restore consistent earnings growth despite uneven utility project schedules. However, its approximately 20% premium to Xylem and valuation near Watts Water suggest that the historical decline has not made BMI an obvious bargain. Third-quarter earnings per share increased 4% to $1.24, while nine-month EPS declined approximately 13% to $3.19, showing that recent improvement has yet to reverse the broader earnings weakness. We believe 30.97x trailing earnings requires a sustained recovery toward the roughly 10% annual earnings growth assumed in the thesis, since slower growth would offer limited protection against further multiple compression. If Badger Meter can convert utility projects and software adoption into consistent profit and cash-flow growth, it could be a good long-term investment, although we would prefer a lower entry price or clearer evidence of recovery before buying.
Previously, we covered a bullish thesis on Badger Meter (BMI) by Durable Value Creators in November 2024, which highlighted smart water ecosystem, AMI adoption, software growth, and long-term utility infrastructure modernization. BMI's stock price has depreciated by approximately 42.53% since our coverage. We believe BMI could be a good long-term investment, but would prefer a lower entry price or clearer evidence of earnings recovery, as its current valuation already assumes sustained growth.
Badger Meter, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds . While BMI could benefit from growing demand for smart water meters and software, we believe certain AI infrastructure stocks offer far stronger long-term potential at a much more attractive entry point. If you are looking for an AI stock more promising than BMI that operates as a critical AI tollboothand stands as the most important company in the world, check out our report about this must-own AI stock .
Disclosure: None.
