Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. 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 revenue growth, impressive record of earnings per share growth, notable return on equity, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.
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- The revenue growth greatly exceeded the industry average of 2.7%. Since the same quarter one year prior, revenues rose by 37.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 two years. We feel that this trend should continue. During the past fiscal year, TREX CO INC increased its bottom line by earning $2.00 versus $0.14 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $2.00).
- 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. Compared to other companies in the Building Products industry and the overall market, TREX CO INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 36.46% is the gross profit margin for TREX CO INC which we consider to be strong. Regardless of TREX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TREX's net profit margin of 23.79% significantly outperformed against the industry.
- TREX has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.88 is somewhat weak and could be cause for future problems.