WMS
Advanced Drainage Systems, Inc.
$130.92
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Moderate
·
Conviction
Overvalued
Trading 26.3% above fair value
You pay
$130.92
Bear
$80.64
Fair
$103.68
Bull
$126.72
Bear
$80.64
-38.4%
$5.76 × 14x
Fair
$103.68
-20.8%
$5.76 × 18x
Bull
$126.72
-3.2%
$5.76 × 22x
Adjust Assumptions
18.0x
5.76$
Key Value Driver
Through-cycle normalized EPS ($5.76)
Implied Market Multiple
22.7x
Analyst Consensus (External Reference)
Never blended into the bear/base/bull estimates above.
Average Target (23 analysts)
$188.20
Divergence from AlphaVal
45%
Summary
Using 7-year normalized EPS of $5.76 at a 18x cycle multiple, the base-case value is $103.68 per share. P/TBV cross-check: 239.9x.
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 239.9x 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 $188.20 (from 23 analysts). Our estimate is 45% 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