Advanced Drainage Systems, Inc. WMS has been benefiting from growth in both U.S. construction and agriculture end markets. Its national presence, and geographic as well as end-market exposure — specifically in the Residential end market — are adding to the bliss.

Shares of this Hilliard, OH-based company — a manufacturer of thermoplastic corrugated pipe, providing a comprehensive suite of water management products and drainage solutions — have gained 112.5% in the past six months, outperforming the Zacks Building Products - Miscellaneous industry’s 60.4% rally.

Earnings estimates for 2020 and 2021 have moved 58.8% and 63.6% north in the past 60 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let us delve deeper into other factors that make this stock a profitable pick.

What Makes the Stock an Attractive Pick?

Improved Residential Construction Market & Domestic Agriculture Business: Declining mortgage rates have been driving the U.S. housing industry in recent times. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions, and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for Advanced Drainage Systems and companies like Installed Building Products IBP, TopBuild BLD, Patrick Industries Inc. PATK and others from the same industry. While Installed Building Products and TopBuild sport a Zacks Rank #1, Patrick carries a Zacks Rank #2 (Buy), at present.

Notably, the company kick-started fiscal 2021 on a strong note as overall demand and business activity remained stable in the fiscal first quarter. Its net sales grew 22.9% for the first quarter of fiscal 2021 driven by growth in both U.S. construction and agriculture end markets. The company’s agricultural and residential sales grew 36% and 13%, respectively, for the quarter.

Infiltrator Water Technologies Acquisition: With the acquisition of Infiltrator Water Technologies in second-quarter fiscal 2020, the company is now the leading provider of plastic leach field chambers, septic tanks and accessories for primary use in residential applications. Products of Infiltrator Water Technologies are used in on-site septic wastewater treatment systems in the United States and Canada. This buyout contributed an additional $84.1 million to net sales to external customers in the fiscal first quarter.

Solid Growth Prospects: Advanced Drainage Systems has solid prospects. The Zacks Consensus Estimate for 2020 earnings of $2.43 per share indicates 175.7% year-over-year growth (versus expected decline of 5% for the industry). Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A. Notably, the company has a three-year expected EPS growth rate of 46.3%.

Superior ROE: Advanced Drainage Systems’ return on equity (ROE) is indicative of growth potential. The company’s ROE of 19.1% compares favorably with the industry average of 10.8%, implying that it is efficient in using shareholders’ funds.

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Advanced Drainage Systems, Inc. (WMS) : Free Stock Analysis Report
 
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