An Intrinsic Calculation For Advanced Drainage Systems, Inc. (NYSE:WMS) Suggests It's 39% Undervalued

Simply Wall St.12-19

Key Insights Advanced Drainage Systems' estimated fair value is US$190 based on 2 Stage Free Cash Flow to Equity Advanced Drainage Systems' US$117 share price signals that it might be 39% ...

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(NYSE:WMS) Suggests It's 39% Undervalued","media":"Simply Wall St.","content":"<div>\n<p>Key Insights\n\n Advanced Drainage Systems' estimated fair value is US$190 based on 2 Stage Free Cash Flow to Equity \n Advanced Drainage Systems' US$117 share price signals that it might be 39% ...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-advanced-drainage-systems-105621554.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>An Intrinsic Calculation For Advanced Drainage Systems, Inc. (NYSE:WMS) Suggests It's 39% Undervalued</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAn Intrinsic Calculation For Advanced Drainage Systems, Inc. (NYSE:WMS) Suggests It's 39% Undervalued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-12-19 18:56 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/intrinsic-calculation-advanced-drainage-systems-105621554.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Advanced Drainage Systems' estimated fair value is US$190 based on 2 Stage Free Cash Flow to Equity \n Advanced Drainage Systems' US$117 share price signals that it might be 39% ...</p>\n\n<a href=\"https://finance.yahoo.com/news/intrinsic-calculation-advanced-drainage-systems-105621554.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4086","symbol_name":"建筑产品","start_time":0,"source_url":"https://finance.yahoo.com/news/intrinsic-calculation-advanced-drainage-systems-105621554.html","article_id":"2492121609","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/5r5oXpDak0g1f46DKo6pQA--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/20440850d85a0a24534edc176f6e5c4b"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2492121609","pubTimestamp":1734605781,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Advanced Drainage Systems' estimated fair value is US$190 based on 2 Stage Free Cash Flow to Equity. Advanced Drainage Systems' US$117 share price signals that it might be 39% undervalued. Our fair value estimate is 14% higher than Advanced Drainage Systems' analyst price target of US$167. In this article we are going to estimate the intrinsic value of Advanced Drainage Systems, Inc.  by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow  model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example!Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.Check out our latest analysis for Advanced Drainage Systems","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4086":"建筑产品","WMS":"Advanced Drainage","TV":"墨西哥电视","LU1721427968.SGD":"BNP PARIBAS AQUA \"CRH\" (SGDHDG) INC","LU2413666004.HKD":"BNP PARIBAS AQUA \"CRH\" (HKDHDG) INC","LU1815336091.USD":"THREADNEEDLE (LUX) GLOBAL SMALLER COMPANIES \"AUP\" (USD) INC","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","LU0054578231.USD":"BGF SYSTEMATIC SUSTAINABLE GLOBAL SMALLCAP \"A2\" (USD) ACC","FCF":"第一联邦金融","LU1165135440.EUR":"BNP Paribas Aqua Classic Cap EUR","NYSE":"纽交所","LU0757428866.USD":"THREADNEEDLE (LUX) GLOBAL SMALLER COMPANIES \"AE\" (USD) ACC","BK4100":"有线和卫星","BK4211":"区域性银行","LU1169590202.USD":"ALLSPRING (LUX)  U.S. SELECT EQUITY \"I\" (USD) ACC","LU2125910179.SGD":"Natixis Thematics Water H-R/A SGD","LU0728928796.USD":"abrdn SICAV I - GLOBAL SMALL&MID-CAP SDG HORIZONS EQUITY \"A\" (USD) ACC","LU2413665964.HKD":"BNP PARIBAS AQUA \"C\" (HKD) ACC","LU1543694498.USD":"法巴水资源基金RH MD Dis","LU1169589451.USD":"ALLSPRING (LUX)  U.S. SELECT EQUITY \"A\" (USD) ACC","LU1620156213.USD":"BNP PARIBAS AQUA \"C\" (USD) INC","LU2125910336.SGD":"Natixis Thematics Water R/A SGD","LU1620156130.USD":"BNP PARIBAS AQUA \"C\" (USD) ACC","LU1923621640.USD":"Natixis Thematics Water R/A USD","LU2308191902.HKD":"BNP PARIBAS ECOSYSTEM RESTORATION \"CLASSIC\" (HKD) ACC","LU1596574779.USD":"BNP PARIBAS AQUA \"C\" (USDHDG) ACC"},"translate_title":"Advanced Drainage Systems，Inc.（纽约证券交易所股票代码：WMS）的内在计算表明其价值被低估了39%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WMS":1,"TV":1,"DCF":1,"FCF":1,"NYSE":1},"content_text":"Key Insights\n\n Advanced Drainage Systems' estimated fair value is US$190 based on 2 Stage Free Cash Flow to Equity \n Advanced Drainage Systems' US$117 share price signals that it might be 39% undervalued \n Our fair value estimate is 14% higher than Advanced Drainage Systems' analyst price target of US$167 \n\n In this article we are going to estimate the intrinsic value of Advanced Drainage Systems, Inc. (NYSE:WMS) by taking the expected future cash flows and discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example! \n Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. \n Check out our latest analysis for Advanced Drainage Systems \n What's The Estimated Valuation? \n We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF ($, Millions) \nUS$409.3m\nUS$517.2m\nUS$617.0m\nUS$691.8m\nUS$756.0m\nUS$811.0m\nUS$858.7m\nUS$900.8m\nUS$938.8m\nUS$973.9m\n\n\nGrowth Rate Estimate Source\nAnalyst x2\nAnalyst x2\nAnalyst x1\nEst @ 12.13%\nEst @ 9.27%\nEst @ 7.28%\nEst @ 5.88%\nEst @ 4.90%\nEst @ 4.22%\nEst @ 3.74%\n\n\n Present Value ($, Millions) Discounted @ 7.5% \nUS$381\nUS$447\nUS$496\nUS$518\nUS$526\nUS$525\nUS$517\nUS$505\nUS$489\nUS$472\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$4.9b\n After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.5%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$974m× (1 + 2.6%) ÷ (7.5%– 2.6%) = US$20b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$20b÷ ( 1 + 7.5%)10= US$9.9b\n The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$15b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$117, the company appears quite undervalued at a 39% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  NYSE:WMS Discounted Cash Flow December 19th 2024\n \n\n The Assumptions \n We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Advanced Drainage Systems as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.5%, which is based on a levered beta of 1.188. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Advanced Drainage Systems\n\n\nStrength\n\nDebt is well covered by earnings and cashflows.\n\n\nBalance sheet summary for WMS.\n\n\n\nWeakness\n\nEarnings growth over the past year underperformed the Building industry.\n\n\nDividend is low compared to the top 25% of dividend payers in the Building market.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow for the next 3 years.\n\n\nGood value based on P/E ratio and estimated fair value.\n\n\n\nThreat\n\n Annual earnings are forecast to grow slower than the American market.\n\n\nWhat else are analysts forecasting for WMS?\n\n\n\n Looking Ahead: \n Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Advanced Drainage Systems, we've put together three essential aspects you should explore: \n\n Risks: For example, we've discovered 1 warning sign for Advanced Drainage Systems that you should be aware of before investing here. \nFuture Earnings: How does WMS's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.\n Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! \n\n PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2492121609"}