NEW YORK (TheStreet) -- Trex Company (NYSE:TREX) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company has not been very careful in the management of its balance sheet.
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- The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 20.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Building Products industry. The net income increased by 296.0% when compared to the same quarter one year prior, rising from $2.11 million to $8.34 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Building Products industry and the overall market, TREX CO INC's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Even though the current debt-to-equity ratio is 1.04, it is still below the industry average, suggesting that this level of debt is acceptable within the Building Products industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.93 is weak.
- Powered by its strong earnings growth of 300.00% and other important driving factors, this stock has surged by 56.67% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
-- Written by a member of TheStreet Ratings Staff
TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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