Simpson Manufacturing (NYSE: SSD) and Trex (NYSE:TREX) are both mid-cap construction companies, but which is the better business? We will compare the two companies based on the strength of their valuation, institutional ownership, earnings, profitability, risk, analyst recommendations and dividends.

Dividends

Simpson Manufacturing pays an annual dividend of $0.84 per share and has a dividend yield of 2.0%. Trex does not pay a dividend. Simpson Manufacturing pays out 41.0% of its earnings in the form of a dividend. Trex has increased its dividend for 3 consecutive years.

Profitability

This table compares Simpson Manufacturing and Trex’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Simpson Manufacturing 10.78% 10.26% 8.96%
Trex 15.12% 56.76% 33.15%

Valuation and Earnings

This table compares Simpson Manufacturing and Trex’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Simpson Manufacturing $914.03 million 2.22 $171.24 million $2.05 20.93
Trex $504.24 million 4.40 $131.61 million $2.58 29.28

Simpson Manufacturing has higher revenue and earnings than Trex. Simpson Manufacturing is trading at a lower price-to-earnings ratio than Trex, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Simpson Manufacturing and Trex, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Simpson Manufacturing 0 1 0 0 2.00
Trex 0 3 2 0 2.40

Trex has a consensus target price of $71.75, indicating a potential downside of 5.03%. Given Trex’s stronger consensus rating and higher possible upside, analysts clearly believe Trex is more favorable than Simpson Manufacturing.

Volatility and Risk

Simpson Manufacturing has a beta of 1.41, suggesting that its stock price is 41% more volatile than the S&P 500. Comparatively, Trex has a beta of 2.36, suggesting that its stock price is 136% more volatile than the S&P 500.

Institutional & Insider Ownership

83.8% of Simpson Manufacturing shares are owned by institutional investors. Comparatively, 92.2% of Trex shares are owned by institutional investors. 0.4% of Simpson Manufacturing shares are owned by insiders. Comparatively, 1.0% of Trex shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Summary

Trex beats Simpson Manufacturing on 14 of the 17 factors compared between the two stocks.

Simpson Manufacturing Company Profile

Simpson Manufacturing Co., Inc., through its subsidiary, Simpson Strong-Tie Company Inc. (SST), designs, engineers and manufactures wood construction products, including connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems used in light-frame construction. The Company’s segments are North America, Europe, Asia/Pacific, and Administrative & All Other. The North America segment includes operations primarily in the United States and Canada. The Europe segment includes operations primarily in France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, the Netherlands and Belgium. The Asia/Pacific segment includes operations primarily in Australia, New Zealand, South Africa, China, Taiwan and Vietnam. The Company manufactures concrete construction products used for concrete, masonry, steel construction and for concrete repair, protection and strengthening, including adhesives, chemicals and mechanical anchors.

Trex Company Profile

Trex Company, Inc. is a manufacturer of wood-alternative decking and railing products. The Company’s products are marketed under the brand name Trex and are manufactured in the United States. It offers a set of outdoor living products in the decking, railing, porch, fencing, trim, steel deck framing and outdoor lighting categories. Its decking products include Trex Transcend, Trex Enhance and Trex Select. The Company’s railing products include Trex Transcend Railing, Trex Select Railing and Trex Signature aluminum railing. It offers Trex Transcend Porch Flooring and Railing System, which is an integrated system of porch components and accessories. The Company offers Trex Seclusions fencing product, which consists of structural posts, bottom rail, pickets, top rail and decorative post caps. It offers a triple-coated steel deck framing system called Trex Elevations. The Company also offers outdoor lighting systems, such as Trex DeckLighting and Trex Landscape Lighting.

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