This Boom Still Has Plenty of Room to Run

The U.S. housing market is on fire... And that's spurring a boom in home improvement.

Home prices are soaring. Sales and new-home construction remain near levels not seen in more than a decade. And folks wanting to sell in the hot market are rushing out to improve things around the house.

In addition, COVID-19 restrictions are still keeping people at home... And they're noticing all the things that need to be fixed or worked on.

As you can see, home improvement is a great industry to be in right now...

Market-research firm Global Market Insights projects a 4.5% compounded annual growth rate for home remodeling through 2026 – when the total home-improvement market will rise to more than $500 billion annually. And according to today's company, roughly 38% of home-improvement expenditures are spent on outdoor improvements.

Add it altogether, and this boom is a great thing for composite-decking leader Trex (NYSE: TREX)...

Since going public in 1999, Trex has transformed from its humble beginnings as a subsidiary to energy giant Mobil into the $12 billion powerhouse of the composite-decking market... Along with decks, the company makes railings, furniture, gazebos, and pergolas.

Trex's products aren't built with wood. Instead, they're made with a mostly plastic composite material. The material doesn't require staining or sealing like wood decks. Plus, it doesn't rot, splinter, or warp. And pests like termites aren't interested in the mostly plastic material.

This encourages more buyers to pay for Trex's more durable products.

Even better, over the long term, the homeowner will recoup his initial investment through reduced maintenance costs. Anybody who has owned a wood deck knows what we mean...

They need constant maintenance. That means pressure washing, sanding, staining, sealing, and more. Wood can splinter, too... And nails or screws can pop up, causing painful injuries.

When you install a Trex deck, you're essentially finished... The boards connect with hidden fasteners, so you don't need to worry about loose nails or screws. And it's easy to clean with soap and water. Plus, less-than-ideal weather conditions won't rot the material.

There's a huge potential market for Trex...

Roughly 80% of houses in the U.S. are at least 20 years old. More than 50% were built prior to 1980. As a result, millions of folks across the country will need to make upgrades and repairs to their homes sooner rather than later.

In 2020, composite products accounted for 22% of the decking-board market, with wood owning the rest. That's up from 20% in 2019. Trex says that each percentage point of market share taken from wood will result in more than $50 million in additional sales.

As a leader in composite decking, this surge in demand is great for Trex products.

As a result, the company is growing rapidly...

Last year, Trex generated $881 million in total sales. That represented an 18% increase over 2019... And it was also the highest-ever sales in a year for the company.

And Trex is preparing for even more growth...

In June 2019, the company announced $200 million in capital expenditures to expand production capacity at its two plants. It has already spent $178 million of that amount. After all of the improvements are finished, the company's production capacity will grow by 70% over its 2019 levels.

So as you can see, despite its success, Trex isn't resting on its laurels. The company is focused on growing. And after its recent expansion, it's ready to excel for years to come.

While Trex doesn't pay a dividend like most growth-focused companies, it still rewards shareholders through share repurchases. Since 2013, the company has spent about $500 million on share buybacks – or about 65% of its net profits over the same period.

Demand for Trex's products was already growing before the pandemic. Now, it has been amplified so much amid the current boom that the company is investing heavily to increase production capacity. This trend isn't over yet. And that should serve as a continued tailwind for Trex shares.

Sometimes investing is simple.