Buy or Sell Trex Stock?

Trex (TREX) stock has fallen 31% during the past day, and is currently trading at $32.43. We believe there is a near-equal mix of good and bad in TREX stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $3.5 Bil in market cap, Trex provides decking, railing, and outdoor living products through residential and commercial segments, distributed via wholesale distributors, retail lumber dealers, and major home improvement stores.

[1] Valuation Looks Moderate

This table highlights how TREX is valued vs broader market. For more details see: TREX Valuation Ratios

[2] Growth Is Inconsistent

• Trex has seen its top line shrink at an average rate of -0.7% over the last 3 years
• Its revenues have grown 0.1% from $1.2 Bil to $1.2 Bil in the last 12 months
• Also, its quarterly revenues grew 22.1% to $285 Mil in the most recent quarter from $234 Mil a year ago.

This table highlights how TREX is growing vs broader market. For more details see: TREX Revenue Comparison

[3] Profitability Appears Strong

• TREX last 12 month operating income was $270 Mil representing operating margin of 22.9%
• With cash flow margin of 24.1%, it generated nearly $284 Mil in operating cash flow over this period
• For the same period, TREX generated nearly $198 Mil in net income, suggesting net margin of about 16.8%

This table highlights how TREX profitability vs broader market. For more details see: TREX Operating Income Comparison

[4] Financial Stability Looks Moderate

• TREX Debt was $158 Mil at the end of the most recent quarter, while its current Market Cap is $3.5 Bil. This implies Debt-to-Equity Ratio of 4.6%
• TREX Cash (including cash equivalents) makes up $11 Mil of $1.5 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.8%

[5] Downturn Resilience Is Weak

TREX 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.

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

 
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

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read TREX Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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.