Is There Now An Opportunity In Advanced Drainage Systems, Inc. (NYSE:WMS)?

Today we're going to take a look at the well-established Advanced Drainage Systems, Inc. (NYSE:WMS). The company's stock saw a significant share price rise of over 20% in the past couple of months on the NYSE. 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. However, could the stock still be trading at a relatively cheap price? 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.

View our latest analysis for Advanced Drainage Systems

Is Advanced Drainage Systems Still Cheap?

Advanced Drainage Systems appears to be overvalued by 33% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$130 on the market compared to my intrinsic value of $98.08. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Since Advanced Drainage Systems’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 kind of growth will Advanced Drainage Systems generate?

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. Though in the case of Advanced Drainage Systems, it is expected to deliver a relatively unexciting earnings growth of 3.0%, 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. However, this brings up another question – is now the right time to 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.

So while earnings quality is important, it's equally important to consider the risks facing Advanced Drainage Systems at this point in time. Every company has risks, and we've spotted 2 warning signs for Advanced Drainage Systems you should know about.

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.