TREX

We rate TREX CO INC (TREX) as a Reduce with a composite score of 41.4/100 at a current price of $43.50. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (57th percentile) and stability (42th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (22th percentile) and momentum (25th percentile) tempers our overall conviction. We assign a Narrow Moat rating (62/100), Medium uncertainty, and Exemplary capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

TREX CO INC holds a top-quartile position (#0 of 50) within the Construction sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 41.4/100 places it at rank #3358 in our full 7,333-stock universe. At $5.5B in market capitalization, TREX CO INC is a mid-cap player in the Construction space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -24% combined with momentum at the 25th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 40% (+16.7pp vs sector) narrow to operating margins of 25% (+17.2pp vs sector) and net margins of 18.2%, yielding a gross-to-net conversion rate of 45%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $43.50, TREX CO INC is trading at a premium to fundamental value. Our value factor score of 38/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 19.6x (roughly in line with the sector median of 19.1x), EV/EBITDA of 13.9x (at a premium), P/B of 4.3x, P/S of 3.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to TREX CO INC. The stock presents a balanced risk profile: risk factors are within normal ranges. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

We identify no major risk factors at this time. The company's stability factor sits at the 42th percentile with quality at the 57th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 40% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate TREX CO INC's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 21.9%, disciplined leverage (39% D/E), best-in-class net margins of 18.2%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — TREX CO INC meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 15.7% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, TREX CO INC receives a Reduce rating with a composite score of 41.4/100 (rank #3358 of 7,333). Our quantitative framework assigns a Narrow Moat (62/100, trend: stable), Medium uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 37/100.

Our analysis does not support a constructive view on TREX CO INC at this time. The combination of the current quantitative profile, medium uncertainty, and exemplary capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.