Advanced Drainage Systems, Inc. – Value Analysis (NYSE:WMS) : October 6, 2017

Capitalcube gives Advanced Drainage Systems, Inc. a score of 34.

Our analysis is based on comparing Advanced Drainage Systems, Inc. with the following peers – Raven Industries, Inc., Rogers Corporation, Proto Labs, Inc. and Dover Corporation (RAVN-US, ROG-US, PRLB-US and DOV-US).

Investment Outlook

Advanced Drainage Systems, Inc. has a fundamental score of 34 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It trades at a lower Price/Book multiple (1.92) than its peer median (3.58).
  • The market expects WMS-US‘s earnings to grow at about the same rate as its chosen peers and also does not seem to expect much improvement in its below peer median returns.
  • WMS-US has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • WMS-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • WMS-US‘s revenue growth in recent years and current P/E ratio are both around their respective peer medians suggesting that historical performance and long-term growth expectations for the company are largely in sync.
  • The company seems to be over-investing in a business with median returns.
  • WMS-US has additional debt capacity.

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Leverage & Liquidity

WMS-US has additional debt capacity.

  • With debt at a reasonable 25.53% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 9.88%), and a well-cushioned interest coverage level of 4.90x, WMS-US has the capacity to borrow some more.
  • Of the 4 chosen peers for the company, only 2 of the stocks have an outstanding debt balance. Companies with no debt include RAVN-US and PRLB-US.

WMS-US has maintained its relatively high liquidity profile from the recent year-end.

  • WMS-US‘s interest coverage is over one standard deviation above its five-year average interest coverage of 3.89x.
  • Though its interest coverage has remained relatively stable at 4.90x compared to 2017, its peer median has increased to 14.29x from 13.21x during this period.
  • Interest coverage fell 0.87 points relative to peers.
  • WMS-US‘s debt-EV is its highest relative to the last five years and compares to a low of 19.24% in 2015.
  • While its debt-EV increased to 25.53% from 21.88% (in 2017), its peer median decreased during this period to 9.88% from 17.47%.
  • Relative to peers, debt-EV rose 11.25 percentage points. Unlike the peer median, it is also above the 25% leverage benchmark.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Raven Industries, Inc. 0 4.91 No interest exp 999
Rogers Corporation 9.88 4.12 22.68 58.03
Proto Labs, Inc. 0 6.6 0 999
Dover Corporation 22.47 1.25 5.89 20.96
Advanced Drainage Systems, Inc. 25.53 2.17 4.9 26.35
Peer Median 9.88 4.12 14.29 58.03
Best In Class 9.88 6.6 No interest exp 999

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Company Profile

Advanced Drainage Systems, Inc. engages in the manufacture of thermoplastic corrugated pipe which provides suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. It operates through the following segments: Domestic and International. The Domestic segment focuses on the manufacture and sale of products throughout the United States. The International segment concerns the manufacture and sale of products in regions outside of the United States. The company products include corrugated high density polyethylene pipe, polypropylene pipe and related water management products. Advanced Drainage Systems was founded in 1966 and is headquartered in Hilliard, OH.

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