Advanced Drainage Systems’ common shares will need to reach $289 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $340 Advanced Drainage Systems stock price by 2029. At the current price of $172, what is the market’s view of Advanced Drainage Systems’ future operating performance?
Executive Summary
- Key Advanced Drainage Systems characteristics: high financial strength, very high profitability, high expected growth, and stability. A big positive influence on Advanced Drainage Systems’ valuation is its superior Risk Profile.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Advanced Drainage Systems Peer Group. Recent market returns have significantly outperformed the Advanced Drainage Systems Peer Group. Total shareholder returns expected to seriously lag the overall equity market. Based on current investor expectations, Advanced Drainage Systems shares should reach a level of $245 by 2029 — an 6.4% per year total shareholder return. A 2029 stock price of $289 would reflect median performance and a price of $340 would be required to reach upper quartile performance.
- Advanced Drainage Systems’ past growth is modestly above average. Historical growth has been high relative to the Advanced Drainage Systems Peer Group and forecasted growth is relatively very high. Revenue Growth has been superior. This factor has buoyed market perceptions of Advanced Drainage Systems. Advanced Drainage Systems’ historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Advanced Drainage Systems’ consensus growth expectations are in line with past growth.
- Pretax ROA, Pretax Margin, and Return on Equity are group leading. Asset Turnover is group lagging. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Risk Profile has been Advanced Drainage Systems’ biggest valuation strength. Advanced Drainage Systems’ risk profile is very favorable. Overall variability has been above average with above average revenue variability, relatively low E.P.S. variability, and only average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are relatively very high. The debt/capital ratio has been relatively steady.
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