Why Shares of Trex Company, Inc. Dropped Today

Is this meaningful or just another movement?

May 5, 2014 at 4:20PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of building product maker Trex Company (NYSE:TREX) fell as much as 14.6% today after reporting earnings.

So what: First-quarter revenue fell 6.7% to $100.6 million and net income dropped 43% to $12.3 million, or $0.73 per share. Analysts were expecting a lot more, projecting $115.3 million in revenue and $0.93 per share in earnings.  

Now what: Management thinks the decking season is just off to a slow start, which makes sense considering the bad winter in the Midwest and Northeast this year. That's why they were confident enough to project $125 million in revenue for the second quarter, which is already more than one-third over. I think today's drop is actually a great buying opportunity because factors that affected the first quarter are one-time in nature and long-term the housing industry has a lot of upside to catch up with slow building in recent years.

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Travis Hoium and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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