Trex Company Inc. Stock Upgraded (TREX)

Editor's Note: 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.

NEW YORK ( TheStreet) -- Trex Company (NYSE: TREX) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, good cash flow from operations, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

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Highlights from the ratings report include:
  • TREX CO INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, TREX CO INC turned its bottom line around by earning $0.14 versus -$0.79 in the prior year. This year, the market expects an improvement in earnings ($2.50 versus $0.14).
  • Net operating cash flow has significantly increased by 100.91% to $0.07 million when compared to the same quarter last year. In addition, TREX CO INC has also vastly surpassed the industry average cash flow growth rate of 2.81%.
  • 38.00% is the gross profit margin for TREX CO INC which we consider to be strong. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -7.84% trails the industry average.
  • TREX's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that TREX's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. 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.
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Trex Company, Inc. manufactures and distributes wood/plastic composite products, and related accessories primarily for the residential and commercial decking and railing applications in the United States. Trex has a market cap of $751 million and is part of the industrial goods sector and materials & construction industry. Shares are up 19.1% year to date as of the close of trading on Wednesday.

You can view the full Trex Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

Editor's Note: 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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