Is It Too Late To Consider Buying Trex Company, Inc. (NYSE:TREX)?

Trex Company, Inc. (NYSE:TREX), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Trex Company’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Trex Company

What's The Opportunity In Trex Company?

Trex Company is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Trex Company’s ratio of 30.61x is above its peer average of 13.11x, which suggests the stock is trading at a higher price compared to the Building industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Trex Company’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Trex Company generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 21% over the next couple of years, the future seems bright for Trex Company. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in TREX’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe TREX should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on TREX for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for TREX, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Trex Company, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for Trex Company (1 makes us a bit uncomfortable) you should be familiar with.

If you are no longer interested in Trex Company, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.