Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Last September, I introduced The Motley Fool readers to Advanced Drainage Systems (WMS -3.83% ) in 1 Climate Change Stock to Consider Buying in This Age of Catastrophic Floods. This company provides water-management solutions -- including high-performance thermoplastic corrugated pipe and ancillary products -- to the commercial, residential, infrastructure, and agricultural markets.

Since my article was published in mid-September, shares are up 25.7% and have returned 26%, as of Aug. 22. (The stock pays a very modest dividend, which is why there is a difference between its price gain and total return.) By comparison, the returns of the S&P 500 and Nasdaq indexes are underwater by 5.6% and 17.1%, respectively, over this period.

Thanks to its powerful performance in recent years, the stock's also a big winner since its July 2014 initial public offering (IPO). Moreover, it still looks very attractive as a long-term investment.

Let's dive into Advanced Drainage Systems' results for its first quarter of fiscal 2023 (period ended June 30), which it reported earlier this month. 

Highway drainage products to be installed. Image source: Advanced Drainage Systems.

Data source: Advanced Drainage Systems.

Wall Street was looking for EPS of $1.40 on revenue of $825 million, so the company raced by both expectations.

Revenue growth was broad based across the company's end markets and geographies. In the earnings release, CEO Scott Barbour said: "This growth offset inflationary cost pressures that we continue to see in transportation and our manufacturing operations. In addition, the pricing actions we have taken have more than offset [the increase in] our raw material costs, which moderated, but remain at elevated levels."

Here's the revenue performance by segment. (This total adds up to more than the company's total revenue because intersegment sales are not included in total revenue.):

Advanced Drainage Systems generated cash of $249.8 million running its operations during the quarter, up 140% from the year-ago period. Free cash flow surged 171% year over year to $213.6 million. The company ended the period with total liquidity of $1.06 billion, comprising cash of $464 million and $595 million available under credit facilities. Net debt (total debt and finance lease obligations minus cash) was $850.2 million.

For the full year, management expects:

The updated full-year guidance represents expected annual revenue growth of 17% to 21% and adjusted EBITDA growth of 33% to 39%.

Advanced Drainage Systems deserves a spot on the watch lists of long-term investors. "It has a long runway for growth in this era of more frequent and severe flooding in certain areas and water scarcity in others," as I opined in my first article on the company. It's important to truly have a long-term investing mindset because the company's performance will likely be somewhat cyclical. Some of its end markets are quite cyclical, such as the residential construction market.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Market-beating stocks from our award-winning analyst team.

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.

Making the world smarter, happier, and richer.

Market data powered by Xignite.