A once-in-a-decade opportunity: 1 unstoppable multibagger up 3,200% since 2009 to buy before it rises again

Since 2009, Trex (TREX -2.93%) delivered total returns of around 3,200% despite being tied to the highly cyclical US real estate industry. Trex, which has been manufacturing composite decking, railings and related products since 1998, has grown rapidly to become the leader in the $8 billion market.

Despite these incredible returns over the past 15 years, the company’s share price is down 52% from its all-time highs set in 2021.

Following a boom in remodeling and restoration fueled by low interest rates and homeowners spending more time at home during pandemic lockdowns, Trex is now facing tougher times.

Ultimately, though, the company has a number of long-term headwinds working in its favor, making its nearly decade-low valuation attractive. Those factors, along with some shorter-term catalysts that will tilt in Trex’s favor, could make this a once-in-a-decade opportunity today.

Here’s the case for buying and owning Trex for decades.

Trex: The leader in composite decking

Using a blend of reclaimed wood fibers and recycled polyethylene sheeting, Trex composite decking is created without cutting down trees and requires less maintenance and lasts about twice as long as traditional wood decking. This value proposition in Trex’s offerings immediately resonated with homeowners, quickly catapulting the company into a leadership position in the US decking and railing industry.

Currently leading with a 13% market share of its industry niche, the company is larger than the next two competitors combined. In fact, Trex commands over 60% of web traffic generated by people looking for deck options, thanks to its Trex.com and Decks.com domains.

In addition, the company believes that it holds a position no. 1 in its decking niche in the following areas: “trust, consumer awareness, consumer search, traffic, social media, sales and market share”.

Despite this leadership advantage in the flooring industry, Trex’s growth story is far from over. Currently, composite or wood alternatives such as Trex make up only 24% of the overall flooring market, with wood making up the other 76%. This leaves a long runway for continued conversions from wood to composite decks, which management estimates will change by about 1.5 to 2 percentage points annually over the long term.

One final wind working in Trex’s favor is that management believes about half of the 60 million decks in the U.S. need updating, leaving even more room for conversions.

4 Reasons Why Trex May Be a Once-in-a-Decade Opportunity Right Now

In addition to these longer-term headwinds, four shorter-term catalysts appear poised to propel Trex’s stock price higher.

1. Lower interest rates are here

With the Fed recently cutting interest rates by 50 basis points, Trex could begin to see increased buying activity from homeowners due to lower borrowing costs. Since 2000, the company’s sales and Fed rates have tended to move in opposite directions, highlighting the cyclical nature of its stock.

TREX Revenue (TTM) data by YCharts.

While it is impossible to predict exact what will happen as a result of the recent rate cuts, they should not hurt Trex’s operations in any way.

2. Improving consumer sentiment

The US Index of Consumer Sentiment (ICS) is currently 69, which is well below the indicator’s historical average of 85. Measuring “how consumers feel about spending and their future expectations for the economy,” the index acts as a leading indicator for consumer spending. Since 2000, when the ICS was below 85, Trex sales have leveled off or even declined.

TREX Revenue (TTM) data by YCharts.

However, since reaching 46 in 2023, ICS has gradually improved to its current mark — with Trex’s revenue growth resuming. This improving indicator, now paired with lower interest rates, could be enough fuel to make Trex’s growth engine again.

3. International sales and new products

In addition to the potential remaining sales for Trex to convert wood floors to composite, the company is still very early in its international expansion plans. While the company has 12%, 7% and 4% market shares in the UK, Germany and France, it has just 1% or less in the remaining 37 foreign countries where it sells, leaving a massive growth track outside US.

Meanwhile, the company’s expansion into the $3.3 billion railing market and the $250 million deck fasteners category brings additional sales growth potential.

Last but not least, in early 2024, the company launched its Trex Signature line of realistic-looking wood flooring, which is its first offering at a luxury price point. While it’s still very early innings for this line, focusing on higher-end homeowners could help reduce the cyclicality inherent in Trex sales.

4. A relatively cheap valuation

While these three near-term catalysts dovetail well with the long-term headwinds working in Trex’s favor, the market continues to take a cautious stance on the company’s stock, leaving it trading well below its 10-year averages.

TREX PE report data by YCharts.

This price-earnings (P/E) ratio of 28 is in line with S&P 500his average of 27.4. That’s not a bad price to pay for a company that has grown sales and net income by 13% and 21% annually over the past decade.

This proven growth history, along with the short-term and long-term catalysts mentioned earlier, gives Trex the potential to be a once-in-a-decade opportunity at today’s valuation.