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Here's Why Trex Stock Was Up 18% in April

By Jon Quast - May 4, 2021 at 12:58PM

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The price of lumber is skyrocketing, and that's potentially good news for the company's sales.

What happened

Shares of Trex (TREX -1.31%) were up 18% in April, according to data provided by S&P Global Market Intelligence. The company didn't have news to report. But the stock did receive bullish coverage from analysts during the month, likely contributing to its gains. However, I believe there's something more to Trex's outperformance in April, considering stock of its rival The AZEK Company rose at an almost identical pace.

So what

Both Trex and The AZEK Company manufacture products used for outdoor decking, among other things. Therefore, both companies primarily compete with pressure-treated lumber for consumer dollars. And right now, lumber prices are surging at an incredible pace. Regarding the increasing cost of lumber, Trex CEO Bryan Fairbanks said, "We've seen the price of lumber take off at this point and we see people coming in looking for composite products."

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

Image source: Getty Images.

It seems investors are counting on Trex and The AZEK Company getting more sales as the price of lumber skyrockets. Perhaps this was one of the factors on the minds of analysts during April as well. According to The Fly, analysts with Loop Capital, Barclays, and Truist all upgraded their outlook at Trex stock last month, giving plenty of confidence to investors.

Now what

Trex is scheduled to release financial results for the first quarter of 2021 on May 10. Management guided for net sales of $235 million to $245 million. At the midpoint, that's 20% growth from the first quarter of 2020. However, its bottom line may be a little leaner than some investors would hope because the company is spending in 2021 to increase its manufacturing capabilities. That could cause some short-term pain. But increased capacity is crucial if this growth stock is to continue reducing its costs and stealing market share away from pressure-treated lumber.

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Stocks Mentioned

Trex Company, Inc. Stock Quote
Trex Company, Inc.
TREX
$55.76 (-1.31%) $0.74
Barclays PLC Stock Quote
Barclays PLC
BCS
$7.73 (-1.53%) $0.12
The AZEK Company Inc. Stock Quote
The AZEK Company Inc.
AZEK
$17.18 (-1.06%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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