What happened
Shares of Trex (TREX 0.20%) 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."
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.
