Analysis: Advanced Drainage Systems (WMS)

WMS thrives in a 'tepid' market, so far.

Water Sector LTP initiated coverage of Advanced Drainage Systems, Inc. (NYSE:WMS) on 8/11/25 when the price was $131.11.

WMS’s all-time high price was $174.48 on 7/26/24, about a year ago. Then the stock declined and closed at $101.10 on 4/4/25, but rebounded to $147.29 as of the day of this report, 8/23/25.

Company With headquarters near Columbus, Ohio, WMS manufactures water drainage products, including plastic pipes (polypropylene and high-density polyethylene), leach field chambers and systems, septic tanks and accessories, storm retention/detention and septic chambers, PVC drainage structures, fittings, water filters, and water separators. Plastic pipe accounts for more than half of net sales. Its customers are in the agriculture, infrastructure, and construction markets. Non-residential construction is the largest segment in terms of sales, at 44% of revenue in fiscal 2024. A majority of sales are made through distributors in the USA.

In 2025, 93% of the company's sales were in the United States and 6% were in Canada. It’s a seasonal business, so sales are higher in the fair-weather growing and building months.

WMS refers to itself, in its 2024 Form 10-K, as “the leader in an otherwise highly fragmented sector comprised of many smaller competitors.”

Strategy

WMS also referred to the current demand for its products as “tepid.” Interest rate fears and “affordability constraints” have stifled single-family housing demand (despite a housing shortage, as reported by the U.S. Chamber of Commerce in March 2025); and tariff derangement syndrome has perplexed manufacturing executives in terms of managing costs and pricing. WMS’s resilience depends on (a) product innovation and (b) boosting sales in higher-margin segments such as plastic leach field chambers and septic tanks.

In terms of innovation, which is a key to differentiating WMS from its competitors, the company continues to invest capital in its Engineering and Technology Center, which opened in October 2024 near its Hilliard, OH, headquarters. The 110,000-square-foot research and testing facility cost $65 million to build and equip. Its research projects include (a) “advanced stormwater solutions that…protect communities” and (b) recycling plastic for use in pipe manufacturing. (The company recycled 540 million pounds of plastic in 2023.)

Quantities WMS was founded in 1966, and its IPO was in 2014. Its current market cap is about $1.19 billion. Its revenue for fiscal 2025 (which ended March 31) was $2.9 billion, a 1% increase from 2024. Net income, net profit margin, and earnings per share declined from 2024 to 2025 by about 12% each. Free cash flow declined year-over-year by 43%, partly owing to the acquisition of Orenco Systems in October 2024 for $256 million in cash. Orenco is a leading manufacturer of decentralized wastewater management products.

WMS stock is reasonably priced at a PE ratio of about 23.7, compared with 29.6 for the S&P 500, according to Stock Rover. Other measures of value, however, such as the price to earnings growth ratio (2.95x) and the Graham Dodd formula, contradict the PE ratio analysis and indicate the shares could be overpriced, according to WallStreetZen.

Debt to equity is about 80%. The current ratio is a fairly healthy 3.2. The dividend yield is a fairly modest 0.55%.

Political risk

WMS contributed about $52,500 to political candidates in the 2024 election cycle – slightly more to Republicans than Democrats, but none to either presidential candidate. WMS was awarded $80,000 from government contracts in Q1 2025, and spent about $80,000 on lobbying in calendar year 2025. My opinion is that WMS’s political risk is minimal at this point, as it doesn’t appear that it has capitulated, or been pressured to do so, by the klepto-kakistocracy. (See Froddy’s Doctrine on Political Risk here.)

Headwinds

It is likely that input costs will rise due to inflationary pressures and/or tariff-related supply chain turbulence. If WMS can’t pass along these costs to customers, in a market with “tepid” demand, its profit margins would be squeezed [as pointed out in an Investing.com analysis dated 7/6/25].

Recommendation: HOLD

Because of those headwinds, as well as our dismal outlook on the economy at least until the midterm elections, we issue a HOLD recommendation for WMS as of 8/23/25, when the stock closed at $147.29.