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Trex Company's (NYSE:TREX) 49% CAGR outpaced the company's earnings growth over the same five-year period

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  • TREX

We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Trex Company, Inc. (NYSE:TREX) shares for the last five years, while they gained 646%. If that doesn't get you thinking about long term investing, we don't know what will. In more good news, the share price has risen 40% in thirty days. This could be related to the recent financial results that were recently released - you could check the most recent data by reading our company report. We love happy stories like this one. The company should be really proud of that performance!

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Trex Company

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Trex Company achieved compound earnings per share (EPS) growth of 30% per year. This EPS growth is lower than the 49% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 65.25.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Trex Company's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Trex Company shareholders have received a total shareholder return of 86% over the last year. That's better than the annualised return of 49% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Trex Company better, we need to consider many other factors. For instance, we've identified 2 warning signs for Trex Company (1 makes us a bit uncomfortable) that you should be aware of.

We will like Trex Company better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.