Trex Stock Lost 31%, Buy Or Wait?

Trex (TREX) stock is down 31.1% in a day. The stock looks fairly priced at the moment, though history suggests you may benefit from buying dips. Consider the following data:

• Size: Trex is a $3.5 Bil company with $1.2 Bil in revenue currently trading at $32.43.
• Fundamentals: Last 12 month revenue growth of 0.1% and operating margin of 22.9%.
• Liquidity: Has Debt to Equity ratio of 0.05 and Cash to Assets ratio of 0.01
• Valuation: Trex stock is currently trading at P/E multiple of 17.6 and P/EBIT multiple of 12.9
• Has returned (median) 47.6% within a year following sharp dips since 2010. See TREX Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for TREX, see Buy or Sell TREX Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and TREX drops another 20-30% to $23 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. Turns out, the stock has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

A single stock can be risky, but there is a huge value to a broader, diversified approach we take with the Trefis High Quality Portfolio. Trefis works with Empirical Asset Management — a Boston area wealth manager — whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients with higher returns while taking on lower levels of risk versus the benchmark index.

Below are the details, but before that, as a quick background: TREX provides decking, railing, and outdoor living products through wholesale distributors, retail lumber dealers, and major home improvement stores for both residential and commercial markets.

2022 Inflation Shock

• TREX stock fell 71.6% from a high of $140.68 on 10 December 2021 to $39.98 on 3 November 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $100.10 on 25 March 2024 , and currently trades at $32.43

 
2020 Covid Pandemic

• TREX stock fell 42.4% from a high of $27.35 on 4 March 2020 to $15.77 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 6 May 2020

 
2018 Correction

• TREX stock fell 39.9% from a high of $22.29 on 10 September 2018 to $13.40 on 24 December 2018 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 9 September 2019

 
2008 Global Financial Crisis

• TREX stock fell 80.0% from a high of $1.69 on 2 February 2007 to $0.34 on 26 November 2007 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 February 2011

 
It is a good thing to keep in mind how low TREX could go during a downturn. And you should also check how the stock fared when compared with the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.