There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Badger Meter (NYSE:BMI) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.22 = US$151m ÷ (US$803m - US$129m) (Based on the trailing twelve months to September 2024).

So, Badger Meter has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Badger Meter .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Badger Meter. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 88%. So we're very much inspired by what we're seeing at Badger Meter thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Badger Meter is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Badger Meter looks impressive, no company is worth an infinite price. The intrinsic value infographic for BMI helps visualize whether it is currently trading for a fair price.

Badger Meter is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.