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Advanced Drainage Systems, Inc. (WMS) - free report >>
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Advanced Drainage Systems, Inc. (WMS) - free report >>
United Rentals, Inc. (URI) - free report >>
Bear of the Day: Advanced Drainage Systems (WMS)
Amid recent market volatility, one stock investors may want to be cautious of is Advanced Drainage Systems (WMS - Free Report) which lands a Zacks Rank #5 (Strong Sell) and the Bear of the Day.
Although Advanced Drainage Systems is one of the leading providers of innovative water management and drainage solutions, there could be more downside ahead for WMS shares based on a trend of declining earnings estimate revisions.
Image Source: Zacks Investment Research
Near-Term Headwinds
Attributed to softer demand and higher operating costs, Advanced Drainage Systems most recently missed top and bottom line expectations for its fiscal second quarter in November.
Earnings of $1.70 per share were slightly down from the prior-year quarter and noticeably missed Q2 EPS expectations of $1.93 by nearly -12%. This came on Q2 sales of $782.61 million which was up from $780.22 million a year ago but fell 4% short of estimates of $818 million.
Citing weaker demand in the non-residential construction market and significant storm events (Hurricane Milton and Helene), Advanced Drainage Systems lowered its full-year revenue guidance to $2.9 billion-$2.975 billion from $2.925 billion-$3.025 billion.
Declining EPS Revisions
Correlating with Advanced Drainage Systems lower revenue guidance, fiscal 2025 and FY26 EPS estimates have continued to trend lower over the last quarter and have fallen over 5% in the last 60 days respectively.
Image Source: Zacks Investment Research
Intriguing but Mediocre Valuation
Trading around $114 a share, Advanced Drainage Systems stock is at an 18.4X forward earnings multiple. While this is a discount to the S&P 500, WMS trades above its Zacks Building Products-Miscellaneous Industry average of 16X forward earnings.
Image Source: Zacks Investment Research
With some of the other notable names in the space being United Rentals (URI - Free Report) , Arcosa (ACA - Free Report) , and CRH plc (CRH - Free Report) , it’s also noteworthy that WMS is above the industry average of 2.1X sales.
Image Source: Zacks Investment Research
Takeaway
It may be too soon to say Advanced Drainage Systems stock is a value trap, but investors are certainly cautious of companies they are paying more than $100 a share for and have downside risks on the horizon.