Advanced Drainage Systems, Inc. (NYSE:WMS), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at Advanced Drainage Systems’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's The Opportunity In Advanced Drainage Systems?
According to my valuation model, the stock is currently overvalued by about 23%, trading at US$87.62 compared to my intrinsic value of $71.32. This means that the buying opportunity has probably disappeared for now. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Advanced Drainage Systems’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Advanced Drainage Systems look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Advanced Drainage Systems, it is expected to deliver a relatively unexciting earnings growth of 4.3%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in WMS’s future outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe WMS should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on WMS for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Advanced Drainage Systems as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Advanced Drainage Systems and you'll want to know about these.
If you are no longer interested in Advanced Drainage Systems, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here