Why Deck Maker Trex Continues To Dominate With Its Synthetic Wood

Rising interest rates and an uncertain economy may slow the pell-mell home sales boom. But home remodeling still looks strong for this year. As we learned when the pandemic took hold, people have developed a strong interest in home improvements. Remodeling should expand some 17% this year, according to the Joint Center for Housing Studies of Harvard University.

And that’s good news for Trex, which is the leading producer of synthetic decks. The company’s material is longer lasting than natural wood, which tends to splinter, rot and stain. Founded in 1996, Trex originated synthetic decks—where recycled plastic and sawdust is made into boards.

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There’s an added plus to Trex: It is environmentally friendly, at a time when climate change is a growing concern. The plastic it recycles otherwise would go into a landfill or, heaven forfend, inside a whale’s stomach.

Decks tap into the rising appeal of outdoor living, where folks spend time in the backyard amid all the comforts of indoors. With spring here, the lure of spending time outdoors is compelling. And so is the long-term attraction of synthetic decks and the company that commands that market, Trex.

“Flexible outdoor living space is more essential than ever as consumers continue to reevaluate where and how they spend their time,” Trex CEO Bryan Fairbanks told analysts in the company’s recent earnings call.

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The stock is cheaper nowadays. Indeed, it ballooned more than sevenfold over the past five years from $18 and peaked in late 2021, near $135. Since then, it has tumbled to around $70. How come? Part of the reason is escalating inflation and interest rates that have prompted this year’s general market pullback. The cost of natural gas it uses in its manufacturing has mushroomed lately, for instance.

Another likely factor in the stock decline, notes William Blair analyst Ryan Merkel in a research note, is the company’s guidance that sales advances may slow and expenses go up. Trex is expanding its manufacturing capacity, capped by a new plant in Little Rock, Ark., expected to open in 2024.

On Wall Street, there’s optimism that the stock will bounce back. For Stifel analysts, the target price this year is $120, down from $130 before and less than the peak. Still, that marks a good path to recovery for investors.

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In 2021, Trex logged all-time record revenue of $1.2 billion, as well as for the fourth quarter, with sales climbing 33% to $304 million. For the year, net income leapt 19%. Aside from decking, it is moving into what’s called “cladding”—namely, providing synthetic wooden facades. It has deals with Target and Starbucks for that. Trex also provided railings for sports stadiums (Madison Square Garden in New York is one customer, for example).

The composite material is touted as better than traditional wooden decks because it is weather-resistant, requires less maintenance and is stain-proof. Splash a glass of red wine on a traditional wooden deck and good luck eradicating the dark smudge. With a Trex deck, people can wipe up the stain with a wet paper towel and the surface looks as if the spill never happened. Synthetic decks last 25 years. Natural decking sure doesn’t.

The company has had success “educating the marketplace,” CEO Fairbanks says in an interview. In particular, a big selling point is that its decks “are less costly over time.”

At first blush, that seems odd. Trex decking is at least twice as expensive for consumers as plain old wood that grew in a forest.But if you throw in upkeep costs over a quarter century, which are negligible for Trex boarding, the company’s cheapest product is 25% of the purchase price and the outlay to maintain and repair wood decking. For Trex’s most expensive product, the out-of-pocket costs are 63% of wood’s.

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As you relax on your nature-resilient deck, that’s a comforting thought.