Core Insights - The Mairs & Power Small Cap Fund reported a return of 2.06% in the first nine months of 2025, underperforming the benchmark Russell 2000 Total Returns Index, which increased by 10.39% [1] - The market remains concentrated in 2025, with a few dominant mega-cap stocks related to artificial intelligence driving most favorable outcomes [1] Company Highlights - Trex Company, Inc. (NYSE:TREX) is a manufacturer of composite decking and outdoor living products, with a one-month return of 9.53% but a significant decline of 54.84% over the last 52 weeks [2] - As of December 10, 2025, Trex's stock closed at $35.39 per share, with a market capitalization of $3.796 billion [2] - The Mairs & Power Small Cap Fund initiated a position in Trex during the third quarter of 2025, viewing its valuation as attractive amid concerns about a slowing housing industry [3] Investment Sentiment - Trex Company, Inc. was held by 41 hedge fund portfolios at the end of the third quarter, indicating stable interest among institutional investors [4] - Despite Trex's potential, the sentiment suggests that certain AI stocks may offer greater upside potential and less downside risk compared to Trex [4]

Company Overview - Trex Company serves residential homeowners, commercial property developers, and institutional clients in the United States, operating in both residential and commercial construction segments [1] - The company generates revenue primarily through manufacturing and distributing outdoor building materials to wholesale distributors, retail lumber dealers, and major home improvement retailers [1][6] - Trex offers a range of composite decking, railing, fencing, and outdoor living products, including branded systems such as Trex Transcend, Trex Select, and Trex Enhance [2] Recent Developments - On November 14, 2025, Gandhi Prithvi, the Chief Financial Officer of Trex, acquired 15,000 shares worth nearly $480,000, marking a significant investment during a period of stock price decline [6][9] - Trex shares have experienced a decline of 54.16% over the twelve months leading up to November 14, 2025, and are down 55% year to date [3][6] - The acquisition price was $31.92 per share, closely aligned with the closing price of $31.77 on the same day [4] Ownership and Market Activity - Following the purchase, direct holdings increased to 30,664 shares, representing approximately $974,195.28 in market value, which is 0.03% of outstanding shares, indicating a doubled stake compared to pre-transaction levels [4] - This purchase is noted as the largest reported transaction by Gandhi Prithvi, with no prior open-market buys or sells of this magnitude [5] Market Context - The housing industry is currently facing challenges due to high interest rates and a mismatch between housing supply and demand, contributing to a struggling market [9] - Trex's disappointing third-quarter results led to a significant drop in share prices, reaching a five-year low, which Mr. Gandhi capitalized on to increase his stock ownership [9][10] - The company has shown confidence in its future by announcing a $50 million share repurchase program [10]

Core Viewpoint - Trex Company, Inc. has been downgraded by Stifel from "Buy" to "Hold" with a reduced price target of $35, indicating a reset in expectations due to known headwinds [1][2]. Financial Performance - In Q3 2025, Trex reported net sales of $285 million, a 22.1% increase from $234 million in the same quarter last year, primarily driven by volume growth [3]. - EBITDA for Q3 2025 rose by 27.2% to $86 million from $68 million, with an EBITDA margin expansion of 120 basis points to 30.3% from 29.1% year-over-year [3]. Future Outlook - For Q4 2025, Trex expects sales to be between $140 million and $150 million, leading to a full-year sales guidance of $1.15 billion to $1.16 billion [4]. - The company aims to capture a larger share of the market transitioning from wood to composite decking [4].

Core Viewpoint - Trex's stock fell 29% after reporting weaker-than-expected quarterly sales and earnings, leading to lowered guidance for 2025 and 2026 [2][5]. Financial Performance - Trex reported adjusted earnings of 51 cents per share for Q3, missing analysts' expectations of 57 cents. Sales increased by 22% year-over-year on an organic basis to $285 million, but fell short of the anticipated $302 million [3][7]. - The company revised its full-year sales outlook to a range of $1.15 billion to $1.16 billion, down from a previous estimate of $1.21 billion to $1.23 billion. It also expects a gross margin decline of 250 basis points in 2026 [4][7]. Market Conditions - Trex's sales have stagnated since the peak of the post-pandemic housing boom in 2021, with current challenges including increased competition and a sudden drop in spending in Q3 [5][8]. - The sluggish home-improvement and residential real estate markets are less concerning to Wall Street compared to Trex's specific issues [5]. Competitive Landscape - Competitors are increasing their marketing expenditures, prompting Trex to follow suit, which has been described as a "marketing war" that represents a new model for the industry [6]. - Analysts have expressed concerns that rising competition could lead to a negative re-rating for Trex in the near term, as investments and narrower profit margins may be necessary to maintain market share [8]. Analyst Ratings - Benchmark Equity Research reiterated a Buy rating for Trex but significantly reduced its price target from $80 to $40, emphasizing the need for Trex to demonstrate faster growth than the overall composite decking market [9].