Barron's Calls Trex (TWP) A Great Speculative Play
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Just two months ago, during September, shares of Trex Company (NYSE: TWP) moved below the Company's 1999 IPO level. The stock went public around $13 and quickly turned into a $50 stock in 2000 due to strong growth and a blatantly green perspective. Shares have since traded in a range between $15 and $50, but have had one of their worst years in 2007: shares have steadily declined about 60% this year and were trading above $20 in January.
A Barron's article, "Break Out the Tiki Lamps", published this weekend, highlights what Barron's is calling a potentially great speculative play. The article points out several prominent factors that could make Trex one of the best turnaround stories in the last decade.
To begin, Barron's points out that Trex has already taken the first step in its turnaround: admitting it has a problem. The Company has already replaced managers, made capital investments in order to upgrade its product line and reduce costs, gotten forbearance from lenders and has reduced production and workforce standards.
Barron's notes that progress can already be seen based on recent changes: the CEO is reporting better retail sell through from its distributors and inventory levels are now lower than in the same period last year. Also, Trex recently raised its revenue guidance for the FY07 from $315-$335 million to $335-$345 million, making the outlook now in-line as Wall Street's estimate is currently $340 million.
The main point of the Barron's article discussed the "three main supports" that will help Trex in a turnaround. First, Barron's found that in 1999, when shares of the Trex were fetching about $22, the Company's main product, composite planking, only made up about 2% of the outdoor deck services market share. By 2006, composite planking made up about 13% of the market, even though the Company's stock price declined from as high as $56 to about $25 in '06. Next, the article mentioned that Trex currently holds 35% market share and is unquestionably the best-known brand as two rivals have recently been taken out due to weak environmental conditions. Third, Barron's said that Trex now calls itself the "low-cost producer" as a result of investments in production.
With so many companies recently moving to a more environmentally friendly, green viewpoint on their business operations, how will the market react to a company that has been green since it became public back in 1999? Well, if the market doesn't eventually react, it is at least listening as shares of Trex have moved higher at today's open, up more than $1, or about 12% this morning.
A Barron's article, "Break Out the Tiki Lamps", published this weekend, highlights what Barron's is calling a potentially great speculative play. The article points out several prominent factors that could make Trex one of the best turnaround stories in the last decade.
To begin, Barron's points out that Trex has already taken the first step in its turnaround: admitting it has a problem. The Company has already replaced managers, made capital investments in order to upgrade its product line and reduce costs, gotten forbearance from lenders and has reduced production and workforce standards.
Barron's notes that progress can already be seen based on recent changes: the CEO is reporting better retail sell through from its distributors and inventory levels are now lower than in the same period last year. Also, Trex recently raised its revenue guidance for the FY07 from $315-$335 million to $335-$345 million, making the outlook now in-line as Wall Street's estimate is currently $340 million.
The main point of the Barron's article discussed the "three main supports" that will help Trex in a turnaround. First, Barron's found that in 1999, when shares of the Trex were fetching about $22, the Company's main product, composite planking, only made up about 2% of the outdoor deck services market share. By 2006, composite planking made up about 13% of the market, even though the Company's stock price declined from as high as $56 to about $25 in '06. Next, the article mentioned that Trex currently holds 35% market share and is unquestionably the best-known brand as two rivals have recently been taken out due to weak environmental conditions. Third, Barron's said that Trex now calls itself the "low-cost producer" as a result of investments in production.
With so many companies recently moving to a more environmentally friendly, green viewpoint on their business operations, how will the market react to a company that has been green since it became public back in 1999? Well, if the market doesn't eventually react, it is at least listening as shares of Trex have moved higher at today's open, up more than $1, or about 12% this morning.
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