WMS
Advanced Drainage Systems, Inc.
$133.00
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Moderate
·
Conviction
Overvalued
Trading 17.7% above fair value
You pay
$133.00
Bear
$82.84
Fair
$112.97
Bull
$143.09
Bear
$82.84
-37.7%
$5.76 × 14x + net cash
Fair
$112.97
-15.1%
$5.76 × 18x + net cash
Bull
$143.09
+7.6%
$5.76 × 22x + net cash
Key Value Driver
Through-cycle normalized EPS ($5.76)
Implied Market Multiple
23.1x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $192.67 from 22 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $112.97 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Price-to-book value of 247.6x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $192.67 (from 22 analysts). Our estimate is 55% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing