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Amid recent market volatility, one stock investors may want to be cautious of is Advanced Drainage Systems WMS which lands a Zacks Rank #5 (Strong Sell) and the Bear of the Day.

Although Advanced Drainage Systems is one of the leading providers of innovative water management and drainage solutions, there could be more downside ahead for WMS shares based on a trend of declining earnings estimate revisions.

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Near-Term Headwinds

Attributed to softer demand and higher operating costs, Advanced Drainage Systems most recently missed top and bottom line expectations for its fiscal second quarter in November.

Earnings of $1.70 per share were slightly down from the prior-year quarter and noticeably missed Q2 EPS expectations of $1.93 by nearly -12%. This came on Q2 sales of $782.61 million which was up from $780.22 million a year ago but fell 4% short of estimates of $818 million.

Citing weaker demand in the non-residential construction market and significant storm events (Hurricane Milton and Helene), Advanced Drainage Systems lowered its full-year revenue guidance to $2.9 billion-$2.975 billion from $2.925 billion-$3.025 billion.

Declining EPS Revisions

Correlating with Advanced Drainage Systems lower revenue guidance, fiscal 2025 and FY26 EPS estimates have continued to trend lower over the last quarter and have fallen over 5% in the last 60 days respectively.

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Intriguing but Mediocre Valuation

Trading around $114 a share, Advanced Drainage Systems stock is at an 18.4X forward earnings multiple. While this is a discount to the S&P 500, WMS trades above its Zacks Building Products-Miscellaneous Industry average of 16X forward earnings.

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With some of the other notable names in the space being United Rentals URI, Arcosa ACA, and CRH plc CRH, it’s also noteworthy that WMS is above the industry average of 2.1X sales.

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Takeaway

It may be too soon to say Advanced Drainage Systems stock is a value trap, but investors are certainly cautious of companies they are paying more than $100 a share for and have downside risks on the horizon.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.