This Beaten-Down Stock Still Churns Consistent Revenue Growth

Trex (TREX -1.08%) manufactures wood-alternative composite decking and other outdoor items from recycled materials.

In this clip from "Ask Us Anything" on Motley Fool Live, recorded on March 30, Motley Fool contributor Rick Munarriz explains how Trex has been riding recent trends and why it could continue to grow revenue at a generous clip.

Rick Munarriz: Basically what happened, especially during the pandemic, is a lot of people, as Demitri had talked about that basically they didn't have to go into work in their big-city offices so they just said all right, well, why am I going to live here in this metropolitan, this camped little apartment, I'm going to move out to the suburbs where I have more land, more space. That also jibes with what's happening in the real estate world where there has been basically a lack of new building until now that we see there's demand. Obviously the prices of real estate have gone up really high, possibly unsustainably high in some markets. But you're seeing that there's a lot of building in the suburbs now, they are expanding there. Obviously, you're still going to see cranes and new high-rises go up in metropolitan areas, but given the lack of option and land in those scenarios, you really do have a lot of real estate companies, basically just focusing just on the outside where people could drive into the major cities if they have to, but still have their own space, single-family homes, with space and stuff like that.

One stock that I like to cash in on this trend. Again, obviously before I even get to the stock I wanted to point out that you may be thinking, well, yeah, now that COVID cases are falling, thankfully for the most part, we're going to be moving back into the metropolitan city. We're going to deal with the fact we won't need cars anymore, we can go back to the regular mass transport in some of these metropolitan cities, but I don't necessarily see that playing out that way. I do think people are a lot more comfortable now, a lot of hybrid workplaces are happening where you come into the office maybe one, two or three times a week. My son who works for a major publicly traded company, but I'm not going to talk about it obviously, next month is they start coming in but just three days a week, not five like in the old days. It is kind of thing where that movement, I think we will still be comfortable moving further away from the crowded cities and more into the hybrid workspace.

The stock I really like here is Trex, T-R-E-X. This is the leader of composite decking, which is wood alternative decking. This is a company that I've been excited about for a while just because it made sense and it was eco-friendly because it's made largely of recyclable materials, but unlike wood decks that you have to replace every year or treat every year rather you have to maintain it, you have to sand it down, stain it and buff it and do all these things to it. They sort of maintained for years and years so minimal maintenance. People are paying more for Trex than they would for a traditional wood deck for their outside patio space. But they are doing so because Trex is over time, it is cost-effective over the maintenance costs and having someone come in every year to get everything up to speed. Trex, obviously a very dynamic company and even though you think it's like a home stock so it's going to be very cyclical, it's grown by at least 9% each of the last 10 years so it's an amazing track record that has consistent growth. Last year, 2021, revenue rose 36%.

That is really outside of usually grows into somewhere in the teens so 36% will not be the norm, but I do think that a lot of builders starting to build up again, build homes outside and once you're in your home, you realize, hey, I really want to expand this outdoor space, let me put out a deck. Obviously during the pandemic we found a lot of people wanted to entertain outside, so safe, and that's where you can actually meet your friends rather than invite them into your home. You went to the neighbor who had that wood deck with the grill and the outdoor kitchen and the gazebo and everything, that is what's working right into Trex and of course they do a lot of those things that I just mentioned. They do outdoor furniture, it's not just the Trex anymore, the Trex in the railings, they're doing outdoor furniture, gazebos, partners with a lot of different companies. A very exciting company but definitely a key to what I think is a trend that I think is not spoken a lot about because it's not necessarily glitzy or speedy, but it is something that I think is interesting.