Image source: Trex.

Shares of Trex (NYSE:TREX) hit an all-time high on Monday, but by Tuesday morning, at least one Wall Street pro was checking out as a former optimist. FBR Capital analyst Alex Rygiel downgraded shares of the leading maker of wood-alternative decking materials, changing his rating from "outperform" to "market perform."

Rygiel hasn't soured on the company itself. Trex has never been in better shape than it is right now. However, with the stock on a tear this year -- soaring 84% year to date, and up a brisk 125% since bottoming out in late January -- the analyst is concerned about the stock's valuation at these previously unseen levels. He is sticking to his earlier $61 price target, 13% below where it closed on Monday after hitting its all-time intraday high.

He's not alone. Seaport Global analyst Matt McCall also chimed in on Trex this morning, initiating coverage of the stock with a "neutral" rating. McCall is also concerned about the stock's valuation after more than doubling over the past 10 months. 

Walking the plank

Rygiel is sticking to his price target, and McCall is initiating coverage with a ho-hum rating, despite the fact that Trex came through with better-than-expected financial results earlier this month. Net sales rose 13% to $106.2 million, Trex's healthiest year-over-year showing so far in 2016. Adjusted earnings nearly doubled, surging 96% to $0.45 a share. Wall Street was settling for a profit of $0.42 a share on $105.1 million in net sales. 

Trex has a knack for landing ahead of the prognosticators. It has consistently trounced analyst profit targets with ease over the past few quarters.

QuarterEPS est.EPS actualSurprise
Q4 2015 $0.22 $0.26 18%
Q1 2016 $0.67 $0.78 16%
Q2 2016 $0.71 $0.79 11%
Q3 2016 $0.42 $0.45 7%

Data source: Yahoo! Finance.

It shouldn't come as a surprise to find that companies that consistently exceed expectations tend to produce market-thumping returns, too. One can cynically point out that the percentage of the beat has been decelerating over the past year, but a beat is still a beat.

Analysts who are talking Trex down based on valuation are basing their market calls on their projections that Trex has proven, time and time again, to be too conservative. This doesn't mean that FBR Capital and Seaport Global are wrong about today's moves. Time will have to tell. However, it's probably a worthwhile exercise to go back to Trex's previous blowout quarter for some new perspectives.

A pair of analysts also talked down Trex stock based on valuation following the early August second-quarter report. CL King analyst Jim Barrett downgraded the stock to "neutral" after the stock's 16% pop following its better-than-expected second quarter. Al Kaschalk from Wedbush also went from "outperform" to "neutral," with a $53 price target. 

They were bad calls. The stock has gone on to soar another 23% since being tagged as fairly valued by both analysts.

There will be some logical concerns with Trex as we head into an era where higher mortgage rates may cool real estate activity, as well as the cash-out refinancing segment that often triggers home improvement projects. However, until analysts finally catch up to Trex's actual performance, it's hard to bet against Trex -- or even remain on the sidelines. Trex has had a great 2016, but that doesn't mean that the party's over. Shifting into neutral -- as now four analysts have done since the beginning of summer -- seems like the wrong way to get ahead here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.