Let the Right Home Improvement Stocks In
May 3rd 2013 4:09PM
Updated May 3rd 2013 4:40PM
Shares of Trex hit an eight-year high today after posting blowout quarterly results this morning.
The leading maker of wood-alternative decking and railing products saw its net sales climb 12% to $107.9 million, exceeding both the $107.4 million that analysts were targeting and its own earlier guidance of $107 million.
Things got even better on the way down to the bottom line as margins expanded as a result of the company's strategy to expand its offerings across three distinct pricing categories. Net income soared by a better-than-expected 70% to hit $1.25 a share. It's a record quarterly profit for Trex, well ahead of the $1.12 a share that Wall Street was forecasting.
Investors shouldn't be surprised. Trex had beaten analyst bottom-line estimates by double-digit percentage margins consistently over the past year.
It also didn't hurt that Lumber Liquidators -- the leading hardwood flooring retailer -- served up blowout quarterly results last week.
If homeowners are comfortable enough to invest in upgrading their indoor flooring, it follows that property owners may also be exploring building or replacing their outdoor patios with Trex's weather-resistant solutions.
Both Trex and Lumber Liquidators came through with double-digit growth in net sales during the first three months of the year, and expanding margins pushed profitability even higher.
The strong reports will naturally lead investors into betting on blowout results by superstore giants Home Depot and Lowe's when they report in three weeks, but let's temper that enthusiasm.
Home Depot and Lowe's are growing a lot slower than Trex and Lumber Liquidators. Analysts are modeling just 3% to 4% in revenue growth at the two superstore home improvement chains this year and in 2014. It's true that they have both bested Wall Street's profit targets in the two most recent quarters, but Trex and Lumber Liquidators have topped forecasts by wider margins.
One can argue that investors will be served well by all four of these companies, and that's probably right. As home prices firm up and housing optimism improves, there will be a lot of spending in sprucing up properties.
However, growth stock investors know that the real gains rest in the faster-growing companies specializing in the more likely home improvement projects.
Trex and Lumber Liquidators are the shining stars in this promising niche.
From home improvement to self improvement
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The article Let the Right Home Improvement Stocks In originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe's, Lumber Liquidators, and Trex. The Motley Fool owns shares of Lumber Liquidators and Trex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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