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Why Trex Stock Jumped 14% in July

By Joe Tenebruso – Updated Aug 11, 2019 at 6:33PM

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The decking-products leader expects a strong sales performance in the third quarter.

What happened

Shares of Trex (TREX -1.06%) climbed 14% last month, according to data from S&P Global Market Intelligence, after the manufacturer of wood-alternative decking products said that its growth would accelerate in the coming quarters.

So what

In its second-quarter report, Trex reported sales that were essentially flat year-over-year at $206 million. It also delivered non-GAAP (adjusted) earnings per share of $0.64, which matched Wall Street's estimates. 

While it was a decent performance, what really caught investors' attention was the company's guidance; management expects Trex's revenue to jump 25% year over year to approximately $207.5 million in the third quarter. After enduring relatively weak growth in previous quarters, investors cheered the news that Trex's expansion was reaccelerating.

A person drawing an upwardly sloping line labeled sales

Image source: Getty Images.

Now what

CEO James Cline said that Trex is experiencing "strong demand" for its residential decking products. The company is ramping up its manufacturing capacity to meet this demand, and with this production capacity coming online, Trex expects its sales to grow rapidly in the quarters ahead.

Longer-term, Trex's future is just as bright. Its decking products are environmentally friendly, as they're made mostly from recycled materials. Yet while Trex is the leader in this category, composite decking accounts for less than 20% of overall residential decking sales. That leaves long runways for growth still ahead for Trex, particularly as consumers continue to shift their purchases toward greener products and away from more environmentally costly alternatives.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Trex. The Motley Fool has a disclosure policy.

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