Yahoo Finance At US$167, Is It Time To Put Advanced Drainage Systems, Inc. (NYSE:WMS) On Your Watch List?
Advanced Drainage Systems, Inc. (NYSE:WMS) received a lot of attention from a substantial price increase on the NYSE over the last few months. The recent share price gains has brought the company back closer to its yearly peak. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Advanced Drainage Systems’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Advanced Drainage Systems
What's The Opportunity In Advanced Drainage Systems?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Advanced Drainage Systems’s ratio of 25.89x is trading slightly above its industry peers’ ratio of 23.56x, which means if you buy Advanced Drainage Systems today, you’d be paying a relatively reasonable price for it. And if you believe Advanced Drainage Systems should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Advanced Drainage Systems’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Advanced Drainage Systems look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With profit expected to grow by a double-digit 17% over the next couple of years, the outlook is positive for Advanced Drainage Systems. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? WMS’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at WMS? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on WMS, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for WMS, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Advanced Drainage Systems at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Advanced Drainage Systems.
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.
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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.
