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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

Two Reasons to Like WMS and One to Stay Skeptical

WMS Cover Image

What a brutal six months it’s been for Advanced Drainage. The stock has dropped 26.7% and now trades at $114.33, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Given the weaker price action, is now an opportune time to buy WMS? Find out in our full research report, it’s free.

Why Does Advanced Drainage Spark Debate?

Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE: WMS) provides clean water management solutions to communities across America.

Two Positive Attributes:

1. Operating Margin Reveals a Well-Run Organization

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Advanced Drainage has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 20.4%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Advanced Drainage Operating Margin (GAAP)

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Advanced Drainage’s EPS grew at an astounding 88.4% compounded annual growth rate over the last five years, higher than its 14.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Advanced Drainage Trailing 12-Month EPS (Non-GAAP)

One Reason to be Careful:

Revenue Tumbling Downwards

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Advanced Drainage’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.5% over the last two years. Advanced Drainage Year-On-Year Revenue Growth

Final Judgment

Advanced Drainage’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 16.2× forward price-to-earnings (or $114.33 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More Than Advanced Drainage

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like United Rentals (+550% five-year return). Find your next big winner with StockStory today for free.

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