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Feb 23, 2021 at 4:16PM

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What happened

Shares of composite-decking company Trex (NYSE:TREX) were falling today after the company reported full-year 2020 results. The results exceeded Wall Street’s expectations but forward guidance was less than what some had hoped for. As a result, Trex stock was down 9% for the day.

So what

Trex benefited throughout 2020 from people staying home more and making upgrades to their homes. The company’s full-year net sales increased 18% from sales in 2019. And fourth-quarter sales made a huge jump. Traditionally, Q4 is slower, but in Q4 2020, Trex’s net sales were up 39% year over year to $228 million.

Image source: Getty Images.

Trex management expects 20% year-over-year net-sales growth in the upcoming first quarter of 2021. And for the year, it expects net sales to grow by double digits. However, that sounds like slower growth than what it enjoyed in 2020 and it’s likely why the stock is down today.

Now what

The COVID-19 pandemic challenged this growth stock with increased labor expenses and material costs in 2020. Despite the challenges, Trex managed to generate record cash from operations of $187 million. It’s a continuation of the company’s long track record of growing earnings by double-digit percentages. 

Impressively, this earnings growth should continue. Consider Trex spent significantly in 2020 to increase production capabilities in Nevada and Virginia. New product manufacturing lines should come completely online in early 2021, removing the build-out cost for company. Furthermore, once fully operational, its new capacity will be 70% greater than what it was in 2019, allowing Trex to produce enough composite decking materials to continue taking market share away from traditional wooden decks.

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