Advanced Drainage’s stock price has taken a beating over the past six months, shedding 29.5% of its value and falling to $112.02 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Advanced Drainage, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Advanced Drainage Not Exciting?
Even with the cheaper entry price, we're swiping left on Advanced Drainage for now. Here are three reasons why WMS doesn't excite us and a stock we'd rather own.
1. 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 performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.1% over the last two years. 
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Advanced Drainage’s EPS grew at a weak 1.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3.1% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Advanced Drainage’s margin dropped by 8.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Advanced Drainage’s free cash flow margin for the trailing 12 months was 11.7%.
Final Judgment
Advanced Drainage’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 17.3× forward P/E (or $112.02 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Advanced Drainage
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