Trex (TREX)

Trex (TREX)

Is Trex (TREX) stock a good buy?

In this article, we review Trex stock, to determine if it’s a good buy, sell, or hold.

Trex is a manufacturer of wood-alternative composite decking, railing, and other outdoor items made from recycled materials. The company was founded in 1996, is headquartered in Winchester, VA, and sells products to 40 countries.

Trex is widely considered to be one of the inventors of composite decking made from recycled materials. The concept for a product that uses materials that would otherwise wind up in landfills is credited to inventors Kjell-Ake Gustafsson, of Binghamton, New York; John J. Muller, of Winchester, Virginia; and Roger A. Wittenberg of Newton, Pennsylvania. The first patent for a “Method of Producing a Wood-Thermoplastic Composite Material” was filed as U.S. Patent in March 1995 and granted in May 1998.

Table of contents

Tykr Rating

  • Summary: On Sale
  • Score: 89/100
  • MOS: 76%
  • Share Price: $56
  • Sticker Price: $155

Trex Company History

  • In 1988, Roger Wittenberg combined sawdust and plastic bags to create a park bench.
  • In 1996, Mobil Chemical Co acquired Wittenberg’s technology and formed Trex, LLC. 
  • In 1999, Trex went public.
  • In 2015, they won the Best Decking award by Ocean Home Magazine.
  • In 2016, they won the Best of Houzz Design Award.
  • In 2017, they won the Best of Houzz Design Award again.
  • In 2020, Fortune magazine named Trex in the 2020 list of the world’s 100 Fastest-Growing Companies.
  • In 2021, Forbes name Trex on the list of the world’s best mid-size companies.

Composite vs Wood

Natural wood decks look great but most people dislike the maintenance including painting, staining, and sealing. Wood decks of all types, including pressure-treated wood, cedar, or redwood, require extensive upkeep because they can rot, split, swell, twist, and fade. Composite was designed with the beauty of wood decking but without maintenance. Composite boards can withstand years of sun, sleet, and snow, which allows the product to maintain its rich color. 

Trex Business Model

Trex manufacturing process combines recycled plastic film, for example, grocery bags and dry cleaning wrap, with wood scraps, some of which are swept from the floors of furniture factories. To procure the amount of plastic film necessary for production, Trex has partnerships with grocery store chains including Albertsons, which has contributed more than 200 million pounds of recycled plastic film to the NexTrex® recycling program. Trex uses approximately 400 million pounds of recycled plastic film to make its composite decking. The company has two manufacturing facilities. One in Winchester, Virginia, and the other in Fernley, Nevada.

How does Trex make money?

Trex manufacturers the following products:

  • Decks
  • Railing
  • Lighting Fixtures
  • Cladding
  • Fascia
  • Outdoor Furniture
  • Pergolas
  • Outdoor Kitchens
  • Lattice
  • Spiral Stairs
  • Joist Protection
  • Glass

Trex sells primarily to consumers and some businesses through channel partner distributors including retailers and home builders. Some of the largest retailers include The Home Depot and Lowe’s.

How is Trex saving the planet?

  • Since the company was founded in 1996, they have never cut down a single tree for the production of its products.
  • They use manufacturing processes that eliminate the use of harmful chemicals.
  • They make their products with 95% recycled materials.
  • In 2021, they upcycled 1 billion pounds of plastic and wood scrap.
  • In 2021, they reduced their greenhouse gas emissions by 33%.

Trex News

This article from zack.com states that Trex reported earnings of $.79 compared to the estimate of $.68, a surprise of 16%. Trex has exceeded earnings expectations every quarter since October of 2019.

This article from fool.com states that Trex’s shares dropped by 15% because they expect lower revenue in the second half of the year due to a decline in home building and remodeling demand.

This video from CNBC talks about owning housing adjacent stocks as opposed to homebuilder stocks. The reason is, that interest rates are rising which means fewer people are buying homes. In this case, people are deciding to renovate their current homes and a great stock to add to the list includes Trex.

This article from fool.com lists 3 stocks that are shaking up their industry including Trex, Twilio, and Bumble. The reason that Trex was added to the list is the fact that more people are finding the maintenance of wood decks to be a hassle. Every year they need to be painted and stained otherwise they will rot, splinter, or become a buffet for termites. Composite decks from Trex don’t require any maintenance. Consumers are finding the higher up-front cost of composite decking to be worth it.

This article from globenewswire.com states that the market for composite decking is expected to reach $6.5B by 2026, up from $2.9B in 2020. That’s an annualized growth of 14% per year and a total return of 124% over 6 years.

Trex Competition

Trex (TREX)

  • Summary: On Sale
  • Score: 89/100
  • MOS: 76%
  • Share Price: $56
  • Sticker Price: $155
  • Revenue: $1.2B

AZEK Company (AZEK)

  • Summary: On Sale
  • Score: 61/100
  • MOS: 90%
  • Share Price: $22
  • Sticker Price: $113
  • Revenue: $1.1B

UFP Industries (UFPI)

  • Summary: On Sale
  • Score: 95/100
  • MOS: 90%
  • Share Price: $90
  • Sticker Price: $454
  • Revenue: $8.6B

Trex 4Ms

MOS: The financials are very strong. A score of 89/100 and MOS of 76% show how well this company is operating.

Meaning: It’s exciting to see the composite decking industry is expected to grow by 124% between 2020 and 2026. I also like the fact that Trex sells products in 40 countries. Typically, I don’t gravitate toward stocks that only sell within one country. I like stocks that can scale globally as that allows for more revenue growth.

Moat: Trex is considered the leading composite manufacturer for residential with AZEK being a close second. UFP does not focus strictly on composite. They manufacture natural wood products, composite products, and offer construction services. There are also numerous private companies including Cali Bamboo, CertainTeed, Barrett Outdoor Living, Envision, Fiberon, and Lumberock. It’s important to point out that more companies are focusing on environmentally friendly products which means we should expect the competition to increase. This is worth paying attention to but is not a major threat to Trex at the moment.

Management: Bryan Fairbanks has been serving as CEO since 2020. Prior to his role as CEO, he served as CFO. He originally joined Trex in 2004 as director of financial planning and analysis. He climbed through the ranks in several other positions including senior director of supply chain, executive director of international business development, vice president, and CFO. Prior to working for Trex he worked as a finance manager at Ford for 10 years. With Fairbanks, I see a lot of financial experience with some supply chain and business development experience. In most cases I would say he has sufficient experience to be operating a company at the CEO level but I see an issue. The Glassdoor rating is 3.4 which is quite low. Ideally, we want to see companies over 4.0. The big problem is the CEO approval of 46%. By comparison, Adobe’s Shantanu Narayen has a Glassdoor approval of 97%, Microsoft’s Satya Nadella has a Glassdoor approval of 97%, AMD’s Lisa Su has a Glassdoor approval of 97%. Specific reviews on Trex state that executive leadership lacks transparency, worker safety is below expectations, and there is a lot of red tape to make decisions. Overall, most of the cons say something bad about management. To me, this is a major turnoff. It would be wise to hire a consulting firm that specializes in leadership training

Trex Financials

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018: $684M
  • 2019: $745M
  • 2020: $880M
  • 2021: $1.2B
  • Revenues have consistently increased which is a good sign.

Net Income (Found on the Income Statement)

  • 2018: $134M
  • 2019: $144M
  • 2020: $175M
  • 2021: $208M
  • The net income has consistently increased which is a good sign.

EPS (Found on the Income Statement)

  • 2018: 1.15
  • 2019: 1.24
  • 2020: 1.52
  • 2021: 1.80
  • EPS has consistently increased which is a good sign.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018: $104M
  • 2019: $89M
  • 2020: $14M
  • 2021: $98M
  • Free Cash Flow has been all over the board. 

Total Assets (Found on the Balance Sheet)

  • 2018: $465M
  • 2019: $592M
  • 2020: $732M
  • 2021: $953M
  • Total Assets have consistently increased which is a good sign.

Total Liabilities (Found on the Balance Sheet)

  • 2018: $122M
  • 2019: $143M
  • 2020: $181M
  • 2021: $232M
  • Total Liabilities have increased which is okay.

Total Debt (Found on the Balance Sheet)

  • 2018: $0
  • 2019: $41M
  • 2020: $0
  • 2021: $0
  • The low debt is impressive.

Total Equity (Found on the Balance Sheet)

  • 2018: $342M
  • 2019: $449M
  • 2020: $588M
  • 2021: $720M
  • Total Equity has consistently increased which is a great sign.

Is Trex stock a good buy?

Regarding the 4Ms, the MOS, Meaning, and Moat all look great. In summary, the financials are outstanding, the business is in an industry that’s poised for growth, and the competition is present but not a major threat yet. I also really like how environmentally friendly they are. Although there are a lot of positives, I personally can’t invest in this company because of the Management. The Glassdoor scores are alarmingly low. In fact, the reviews are a painful reminder of the poor leadership I’ve worked with at companies in the past. If I smell a hint of “company men” style leadership, I won’t touch the business with a 10-foot pole. This is a hard pass for me.

If you invest in this company, tread with caution and keep an eye on management.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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