Another stock that has been showing up on screens lately is Trex Company (TREX:NYSE). They are the world’s largest manufacturer of high performance, wood alternative decking and railing. The stock recently completed a split and trades at around $67/share on the NYSE. I know the brand mostly for decks but the company also offers pergolas, railings and outdoor furnishings. Fencing and customized outdoor kitchens are also on their menu. Here are the bullets:
- Composite decking makes up 17% of the overall deck market, estimates being that there are approximately 40 million decks in North America
- Trex has a 45% market share of the composite deck market.
- Composite decking is expected to make up 21% of the total deck market by 2021. A 1% market share gain from wood equates to $50 million in annual composite revenue.
- Company is eco-friendly. Their products are made from 95% recycled content. A 500 square foot Trex deck contains 140,000 recycled plastic bags, making them one of the largest plastic bag recyclers in the US. The use of recycled materials offers significant cost savings to the company.
- Five consecutive years of record sales.
- Outdoor furnishings offer cross selling opportunities.
- Offered at 6700 locations, including Lowe’s and Home Depot
Here is my thinking: The company offers a product with a premium feel to it. The brand is established. The name is known. Though the upfront cost of a composite deck is more than wood, the ongoing maintenance costs are significantly less. The company is growing their own market share in a market that, itself, is growing. They are expected to have a “bigger piece of a bigger pie”, so to speak. A premium, eco-friendly product with lower maintenance is a recipe for reaching millennials, once they start buying houses! We are taking small positions in the stock up until their next earnings announcement on July 30th, 2018. The stock’s performance will be linked to home building numbers and consumer confidence.
For more information: http://www.trex.com