Trex: A Green Stock That’s Not In The Red – Seeking Alpha

Trex: A Green Stock That’s Not In The Red – Seeking Alpha

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Intro & Thesis

I always say that speculators follow the news and investors follow the numbers. If the company isn’t profitable or about to be in the very near future, I won’t even consider buying its stock. I also rarely ever short stocks since I can’t be certain the market thinks the same way I do.

I believe there is a great deal of hope in “green stocks” as investors mistakenly focus on how the world’s energy production should be rather than how it is. In my opinion, many green investments will have an ROI that mirrors First Solar (NASDAQ:FSLR) more than the infamous Tesla (NASDAQ:TSLA). Other green stocks such as Plug Power (NASDAQ:PLUG), FuelCell (NASDAQ:FCEL), & Bloom Energy Corp. (NYSE:BE) have market caps in the billions and bleed cash every single year. Although the news and future prospects may be great, the numbers aren’t.

This is why I was surprised when I discovered Trex Company Inc. (NYSE:TREX). Trex is a company that is environmentally friendly with growing sales & profits. So I started digging deeper into the company’s financials, products, and operations. I believe that Trex still has a long runway of growth over the next decade even at its current valuation. Based on the company’s financials, moat, international expansion, and the ever growing green consciousness sweeping the world, Trex will continue to grow.

The Company

Trex manufactures, markets and distributes wood alternative composite decking, railings, and furniture. This composite, which I will describe in more detail below, is made with 95% recycled material giving Trex true bragging rights as a green friendly company.

As of this writing, Trex has a 10 year ROI of 3,950%. The investment return over that period is superior to many other high growth companies that receive far more attention. This includes companies such as Microsoft (MSFT) with 1,017%, Apple Inc. (AAPL) 1,041%, Adobe (ADBE) 1,678%, Advanced Micro Devices (AMD) 2,330%, and countless others.

Trex has recorded 15% average YOY sales for the previous 5 years. Over the same period, operating and net income grew at faster rates than sales recording 25% and 30% growth respectively. For the previous 5 quarters, revenue has averaged 25% YOY growth. The company’s buyback program has left the number of shares outstanding at an all-time low.

I do believe that price of lumber reaching the stratosphere helped nudge the company’s sales upward during the pandemic. However, inflation whether it be short term or chronic is not part of my bullish thesis for Trex. While this may help in the short term, the true value is the business’s products and moat.

The Extent of Trex’s Moat

Trex has a stronger moat than any other company that I have written about. Being a leader in its industry certainly contributes to the moat. According to the investor presentation, 70% of traffic for composite decking comes from trex.com and decks.com. However, my personal experience shopping for composite decking demonstrated the true strength of the moat for Trex.

Last week I drove to the Home Depot (HD) because I wanted to check out the Trex products personally with my own eyes. Obviously everything was in low …….

Source: https://seekingalpha.com/article/4478727-trex-green-stock-not-red-valuation-justified

Decking