As reflected at the current price of $95, what future Trex operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, Trex shares will need to reach $159. To achieve Upper quartile performance, Trex’s stock price will need to reach $187 by 2028.
Executive Summary
- Trex’s important characteristics: high expected growth, above average financial strength, average profitability, and instability.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Trex Peer Group. Recent market returns have significantly outperformed the Trex Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Trex shares should reach a level of $58 by 2028 — an -8.0% per year total shareholder return. A 2028 stock price of $159 would reflect median performance and a price of $187 would be required to reach upper quartile performance.
- Trex’s achieved growth is modestly above average. Historical growth has been high relative to the Trex Peer Group and forecasted growth is relatively high. Asset Growth, and Revenue Growth have been superior. These factors have buoyed market perceptions of Trex. Trex’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. Trex’s consensus growth expectations are lower than historical growth.
- Profitability is slightly above average. The company has below average cash and will have to work to generate attractive investment opportunities and improve valuation.
- Trex’s risk profile is unfavorable. Overall variability has been above average with above average revenue variability, only average E.P.S. variability, and very high stock price volatility. Financial Strength is only average and earnings’ expectations are relatively very high. The debt/capital ratio has risen very significantly.
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