Is WMS Stock A Buy or Sell?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Advanced Drainage Systems Inc. (NYSE:WMS) changed recently.

Is WMS stock a buy? Advanced Drainage Systems Inc. (NYSE:WMS) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 25 hedge funds’ portfolios at the end of December. Our calculations also showed that WMS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as American Campus Communities, Inc. (NYSE:ACC), B2Gold Corp (NYSE:BTG), and Oshkosh Corporation (NYSE:OSK) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a glance at the fresh hedge fund action surrounding Advanced Drainage Systems Inc. (NYSE:WMS).

Do Hedge Funds Think WMS Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in WMS a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Advanced Drainage Systems Inc. (NYSE:WMS) was held by Stockbridge Partners, which reported holding $285.1 million worth of stock at the end of December. It was followed by Impax Asset Management with a $240.2 million position. Other investors bullish on the company included Select Equity Group, MIG Capital, and CaaS Capital. In terms of the portfolio weights assigned to each position Stockbridge Partners allocated the biggest weight to Advanced Drainage Systems Inc. (NYSE:WMS), around 6.71% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, designating 4.54 percent of its 13F equity portfolio to WMS.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Advanced Drainage Systems Inc. (NYSE:WMS) but similarly valued. These stocks are American Campus Communities, Inc. (NYSE:ACC), B2Gold Corp (NYSE:BTG), Oshkosh Corporation (NYSE:OSK), Polaris Inc. (NYSE:PII), Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS), Leggett & Platt, Inc. (NYSE:LEG), and Turning Point Therapeutics, Inc. (NASDAQ:TPTX). This group of stocks’ market valuations match WMS’s market valuation.

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As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $966 million in WMS’s case. Oshkosh Corporation (NYSE:OSK) is the most popular stock in this table. On the other hand Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS) is the least popular one with only 12 bullish hedge fund positions. Advanced Drainage Systems Inc. (NYSE:WMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WMS is 56. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on WMS as the stock returned 36.5% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.