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Why Azek Stock Soared Today

By Rich Smith - Aug 12, 2021 at 2:36PM

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Azek beat sales forecasts in Q3 and is getting ready to do it again in Q4.

What happened

Shares of recycled homebuilding products-maker The Azek Company ( AZEK -1.49% ), maker of composite "wood" products, such as TimberTech decking and Azek Trim, are on a tear Thursday, rising 10.7% through 2 p.m. EDT despite missing earnings estimates this morning.

That's the bad news, by the way. Analysts had forecast Azek would earn $0.23 per share pro forma in fiscal Q3 2021, but it earned only $0.21. The good news, though, is that Azek's sales beat expectations with a stick.  

Arrow angles up on a green stock chart.

Image source: Getty Images.

So what

Q3 2021 sales exceeded Q3 2020 numbers by more than 46%, and at $327.5 million, easily topped Wall Street's prediction of $291.5 million as well. What's more, while Azek may have disappointed with its pro forma numbers, its GAAP earnings did not disappoint. In fact, when calculated according to generally accepted accounting principles (GAAP), earnings for the fiscal quarter were $0.14 per share -- much better than last year's Q3 loss of $0.44 per share.  

In short, "incrementally higher than expected costs" from "increasing inflation and availability challenges in materials, labor and transportation" may have prevented Azek from hitting Wall Street's profit target, but they didn't prevent the company from earning a profit...period.

Now what

And the news for the rest of this fiscal year looks similarly good. Azek told investors that by year end, it expects to book 28% to 30% year-over-year sales growth, and 27% to 29% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Even at the low end of estimates, that seems likely to trump analyst forecasts for sales of $1.12 billion this year and sets the stage for Azek to follow up its Q3 sales beat with another one in Q4.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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