Analyzing Advanced Drainage Systems (NYSE:WMS) and Quanex Building Products (NYSE:NX)

Quanex Building Products (NYSE:NX) and Advanced Drainage Systems (NYSE:WMS) are both construction companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, risk, earnings, analyst recommendations, dividends, institutional ownership and profitability.

Insider & Institutional Ownership

97.5% of Quanex Building Products shares are held by institutional investors. Comparatively, 89.8% of Advanced Drainage Systems shares are held by institutional investors. 1.9% of Quanex Building Products shares are held by company insiders. Comparatively, 1.7% of Advanced Drainage Systems shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Volatility & Risk

Quanex Building Products has a beta of 0.91, indicating that its stock price is 9% less volatile than the S&P 500. Comparatively, Advanced Drainage Systems has a beta of 1.29, indicating that its stock price is 29% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of current ratings and target prices for Quanex Building Products and Advanced Drainage Systems, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Quanex Building Products	2	0	1	0	1.67
Advanced Drainage Systems	1	1	7	0	2.67

Quanex Building Products presently has a consensus price target of $28.00, suggesting a potential upside of 65.02%. Advanced Drainage Systems has a consensus price target of $185.75, suggesting a potential upside of 26.12%. Given Quanex Building Products’ higher possible upside, analysts clearly believe Quanex Building Products is more favorable than Advanced Drainage Systems.

Dividends

Quanex Building Products pays an annual dividend of $0.32 per share and has a dividend yield of 1.9%. Advanced Drainage Systems pays an annual dividend of $0.80 per share and has a dividend yield of 0.5%. Quanex Building Products pays out -5.7% of its earnings in the form of a dividend. Advanced Drainage Systems pays out 14.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Advanced Drainage Systems has raised its dividend for 1 consecutive years. Quanex Building Products is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Quanex Building Products and Advanced Drainage Systems’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Quanex Building Products	-13.85%	11.11%	4.07%
Advanced Drainage Systems	13.98%	26.63%	11.80%

Earnings and Valuation

This table compares Quanex Building Products and Advanced Drainage Systems”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Quanex Building Products	$1.84 billion	0.42	-$250.81 million	($5.63)	-3.01
Advanced Drainage Systems	$3.05 billion	3.70	$426.46 million	$5.44	27.07

Advanced Drainage Systems has higher revenue and earnings than Quanex Building Products. Quanex Building Products is trading at a lower price-to-earnings ratio than Advanced Drainage Systems, indicating that it is currently the more affordable of the two stocks.

Summary

Advanced Drainage Systems beats Quanex Building Products on 12 of the 17 factors compared between the two stocks.

About Quanex Building Products

Quanex Building Products Corporation, together with its subsidiaries, provides components for the fenestration industry in the United States, rest of Europe, Canada, Asia, the United Kingdom, and internationally. The company operates through three segments: North American Fenestration, European Fenestration, and North American Cabinet Components. It offers flexible insulating glass spacers, extruded vinyl profiles, window and door screens, and precision-formed metal and wood products, as well as cabinet doors and other components for original equipment manufacturers (OEMs) in the kitchen and bathroom cabinet industry. In addition, the company provides various non-fenestration components and products, including solar panel sealants, trim moldings, vinyl decking, fencing, water retention barriers, and conservatory roof components. It sells its products to OEMs in the building products industry through sales representatives, direct sales force, distributors, and independent sales agents. Quanex Building Products Corporation was founded in 1927 and is based in Houston, Texas.

About Advanced Drainage Systems

Advanced Drainage Systems, Inc. designs, manufactures, and markets thermoplastic corrugated pipes and related water management products in North America and internationally. The company operates through Pipe, International, Infiltrator, and Allied Products & Other segments. It offers single, double, and triple wall corrugated polypropylene and polyethylene pipes; plastic leachfield chambers and systems; EZflow synthetic aggregate bundles; wastewater purification through mechanical aeration wastewater for residential and commercial systems; septic tanks and accessories; combined treatment and dispersal systems, including advanced enviro-septic and advanced treatment leachfield systems; and allied products, including storm retention/detention and septic chambers, polyvinyl chloride drainage structures, fittings, and water quality filters and separators. The company also purchases and distributes construction fabrics and other geosynthetic products for soil stabilization, reinforcement, filtration, separation, erosion control, and sub-surface drainage, as well as drainage grates and other products. In addition, it provides PVC hubs, rubber sleeves, and stainless-steel bands. The company offers its products for non-residential, residential, agriculture, and infrastructure applications through a network of distribution centers. Advanced Drainage Systems, Inc. incorporated in 1966 and is headquartered in Hilliard, Ohio.