At US$155, Is Advanced Drainage Systems, Inc. (NYSE:WMS) Worth Looking At Closely?

Let's talk about the popular Advanced Drainage Systems, Inc. (NYSE:WMS). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$179 at one point, and dropping to the lows of US$155. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Advanced Drainage Systems' current trading price of US$155 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the 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 there are any catalysts for a price change.

Check out our latest analysis for Advanced Drainage Systems

What Is Advanced Drainage Systems Worth?

According to our valuation model, Advanced Drainage Systems seems to be fairly priced at around 13.49% above our intrinsic value, which means if you buy Advanced Drainage Systems today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $136.45, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low 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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Advanced Drainage Systems?

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 30% over the next couple of years, the future seems bright 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 its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

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 its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining 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. In terms of investment risks, we've identified 2 warning signs with Advanced Drainage Systems, and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com