Please ensure Javascript is enabled for purposes of website accessibility

Why Trex Stock Was Up 45% in the First Half of 2020

By Jon Quast – Jul 6, 2020 at 2:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Trex products are still selling, profits are growing, and it's still executing its long-term growth strategies.

What happened

Shares of composite-decking company Trex (TREX 0.63%) rose 44.7% in the first half of 2020, according to data provided by S&P Global Market Intelligence. It was a quick turnaround. The stock fell hard when the market crashed, as investors questioned how much homeowners would want to tackle a deck project during a pandemic.

Trex's sales, however, have held up well. And management's attention to profitability continues to pay off. This is why the stock rallied to market-beating returns.

TREX Chart

TREX data by YCharts

So what

During the first half of 2020, Trex reported full-year 2019 results and results for the first quarter of 2020. The full-year 2019 results came before COVID-19 was declared a global pandemic, while Q1 results came in May -- well into the health crisis. This gives investors a good picture of how Trex is performing relative to its pre-pandemic expectations.

In 2019, Trex's net sales grew 9% year over year. And for 2020, it was guiding for double-digit revenue growth. As the coronavirus began spreading, it was fair to question that guidance. But Q1 results showed net sales growth of 12% to $200 million. 

For the upcoming second quarter, Trex is guiding for net sales of $180 million to $190 million, which is actually down 10% year over year at the midpoint. However, it appears investors are willing to look past this sales slump because of the company's continued bottom-line growth.

A businessman draws an upward arrow on a transparent touchscreen displaying a stock chart.

Image source: Getty Images.

Now what

Trex makes a habit of making production more efficient, securing cheap raw materials, and controlling corporate costs. Q1 was no exception. Trex runs a tight ship, and that led to 35% Q1 earnings-per-share (EPS) growth. Therefore, shareholders should be encouraged that CFO Bryan Fairbanks was promoted to the CEO role in April; it likely means EPS growth will stay a priority.

Also looking forward, consider Trex's manufacturing operations have continued despite physical distancing guidelines from health organizations. Furthermore, new production lines in Nevada and Virginia are still slated to start up on schedule. These facilities will increase Trex's production capability, allowing it to meet growing demand as composite decking steals market share from traditional pressure-treated lumber. 

Jon Quast owns shares of Trex. The Motley Fool owns shares of and recommends Trex. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.