3 Beaten-Down Stocks Worth Buying Today

Trex Company, Inc., Lumber Liquidators, and Tile Shop Holdings are all down this year, even as the economy strengthens and housing sales improve. What gives?

Jun 26, 2014 at 10:11AM

Over the past year, Tile Shop Holdings (NASDAQ:TTS)Trex Company, (NYSE:TREX), and Lumber Liquidators (NYSE:LL) have all taken a beating, whether from poor business results caused by bad weather, lumpiness in sales resulting from a slower-than-anticipated recovery in housing, and, in the case of both Lumber Liquidators and Tile Shop Holdings, some varying degree of short attack and accusations of illegal trade activities.

TREX Chart

TREX data by YCharts.

Mr. Market hasn't been kind to these three companies, and largely for good reason, if you focus on recent results and activity. But if you take the long-term view and dig a little deeper, there's still a lot to like about these three companies -- especially with the market having marked them all down so much. Let's take a closer look. 

When it rains, it pours

Trex Transcend Decking Railing Spiced Rum Night Pergola
Source: Trex.

When it comes to Trex, the problems really started more than a year ago, following a horrible spring quarter. What is typically the busiest part of the year for the company came in well below expectations, and management ended up cutting the full-year forecast from moderate growth just under 10% to potentially flat sales. Considering that Trex is supposed to be in growth mode -- after all, the company's products are now available in several dozen countries, versus just a handful only five years ago -- investors weren't well pleased. 

Fast-forward to the end of 2013, and the addition of some big resellers in the Northeast led to a strong improvement in sales. At least until the results of the first quarter were announced in May, sending the stock down more than 30% since, and 27% since the beginning of the year. While weather was certainly a valid excuse this time, management is also singing a much different tune than last summer. CEO Ron Kaplan made it clear that the second quarter would be strong and guided to sales growth of 27% for the quarter, and 6% for the first six months, even after the terrible Q1. 

Source: Lumber Liquidators.

Lumber Liquidators and Tile Shop Holdings both dealt with serious weather impact in the first part of the year as well. Typically showing strong same-store sales results, Lumber Liquidators actually saw a 0.6% decline in comps in Q1. But the evidence is strong that this was weather-related, with comparable sales growth of more than 8% in stores not affected by weather, versus a 14% decline in markets that experienced bad winter weather. 

Tile Shop Holdings reported the same story, seeing its comps come in at a 2.5% decline. However, net sales were up more than 13%, because of $8.8 million in sales at stores that weren't open one year ago. Tile Shop is still coming out from under the effects of a short attack that, while overboard in some of its accusations of illegal activity, did expose an ugly situation with a former brother-in-law of founder Robert Rucker, a company employee, who had some involvement with a Chinese supplier that was unethical. 

Brighter days already here

Tts Ml
Source: The Tile Shop.

Tile Shop Holdings has moved past this speed bump (and parted ways with the brother-in-law), and management has updated its guidance, projecting a full year of comparable-sales growth of 4%-6%, and total revenue growth of up to 26%, even after a terrible first quarter. The company expects to open 20 stores in 2014. 

Lumber Liquidators reiterated its full-year guidance for 2014, also showing a lot of confidence that the weather in Q1 simply delayed business and didn't cost it business. The company also said it will open 35-40 stores and invest up to $50 million in its supply chain to support future store openings. Comparable-store sales are expected to be in the mid- to high-single-digit range, an increase from the 3%-4% or so that was expected. 

Trex is a really interesting one. Not only did management similarly reiterate guidance for the year -- and state that early results for the current quarter showed a strong rebound already under way -- but CEO Kaplan also talked about the company's new (still secret) product. He reinforced that this new product has no ties to either consumer demand or the housing market, and that it was not for a cyclical industry. The best part? It would be accretive -- adding materially -- to this year's earnings. 

Final thoughts: See beyond the lumpy quarters 
And keep the long-term view in mind. Lumber Liquidators and Tile Shop Holdings are both still relatively small, and their businesses are incredibly fragmented, meaning there's a lot of room to expand and grow over the next decade. Factor in that this is still the early part of the housing rebound, and this is the right side of the cycle to invest in these companies. For Trex, the same thing applies, plus the potential game-changing impact of adding a new market that's outside of housing and consumer demand. 

While Mr. Market hasn't been kind to these three in 2014, the business prospects look great. Looking out five years, all three have a solid chance to outperform the market. 

Leaked: This coming consumer device could change everything
Imagine the multibillion-dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the-radar company at the epicenter of this revolution that makes it all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Jason Hall owns shares of Lumber Liquidators, Tile Shop Holdings, and Trex. The Motley Fool recommends and owns shares of Lumber Liquidators, Tile Shop Holdings, and Trex. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers