Sell: Advanced Drainage Systems (WMS)
from Game Changers
Updated from Investment Digest 770, June 17, 2015
The time has come to cut losses in Advanced Drainage Systems (WMS). You may remember that we held out until the company’s restated financials were released, expecting a sigh of relief from investors and a positive market reaction.
Though the adjustments themselves had a relatively small impact on the company’s cash positions, they did have a significant effect on GAAP versus non-GAAP earnings. They also suggest either incompetence on the part of management or an effort to deceive investors throughout the IPO process.
I find this troubling.
As part of the restatement announcement, we also learned that the SEC launched an investigation. Though the SEC requested a voluntary submission of certain materials from the company roughly four months ago, we’re only hearing about it now. The worst part is that, during this period, the company held a conference call specifically focused on the topic of the restatements, and it made no such announcement at that time.
I consider this to be even more troubling.
Though we’ve enjoyed a recovery of several percentage points, the time has come to take losses and walk away from this investment. After fully digesting the restated financials and the company’s prospects, we see a material change to our investment thesis that warrants exiting the position right now.
Sell Advanced Drainage Systems at Market Price.
Ian Wyatt, Game Changers, www.wyattresearch.com, 866-447- 8625, April 22, 2016