There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Badger Meter (NYSE:BMI) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Badger Meter:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.18 = US$83m ÷ (US$560m - US$97m) (Based on the trailing twelve months to June 2022).

So, Badger Meter has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% it's much better.

View our latest analysis for Badger Meter

Above you can see how the current ROCE for Badger Meter compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Badger Meter Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 60% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Badger Meter has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Badger Meter's ROCE

To sum it up, Badger Meter has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 120% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you're still interested in Badger Meter it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Badger Meter may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.