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Why Shares of Trex Are Falling Today

By Lou Whiteman - Updated Mar 9, 2020 at 3:00PM

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One of the holdouts in recent weeks finally succumbs to the market sell-off.

What happened

Shares of Trex (TREX 3.17%) were down about 9% around 3 p.m. on Monday, a miserable day for markets. There was no company-specific news for the composite-wood manufacturer, but the market is punishing highfliers as fears of a COVID-19 coronavirus-induced recession continue to mount.

So what

Trex has been a rare standout in a tough market, with its shares hitting a new high last week. The company has enjoyed solid growth in its composite decking product, which now makes up roughly one-fifth of total decking installations, and was seen as a potential beneficiary of the coronavirus scare should consumers decide to stay at home, and perhaps renovate, instead of taking vacations this summer.

A Trex composite deck overlooking a waterfront.

Image source: Trex.

But the shares came crashing back on Monday, a risk-off day for markets. If this coronavirus causes a full-blown economic slowdown or recession, purchases of consumer discretionary products like new decks could be put on hold. It's also possible spooked investors were looking to take profits in one of the few stocks that have weathered the coronavirus sell-off up until now.

Now what

Even after Monday's sell-off, shares of Trex are still up more than 32% over the past year and up 264% over the past five years, beating the S&P 500 by 31 percentage points and 230 percentage points, respectively. This is a quality company with a compelling product.

I can't predict what the next few days, months, or quarters will look like, but I remain bullish on the long-term prospects for Trex and its composite decking product. Long-term-focused investors should hold on through the downturn.

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