Sell The Home Depot, Inc. (HD) Stock, Buy Trex Company, Inc. (TREX) and Lumber Liquidators Holdings Inc (LL)

Shares of Lumber Liquidators Holdings Inc (NYSE:LL) soared 12% yesterday — and have continued to hit new all-time highs this morning — after posting blowout quarterly results.

Lumber Liquidators Holdings Inc (NYSE:LL)The hardwood flooring retailer saw net sales soar 22.5%, to $230.4 million during the first quarter, fueled by a 15.2% spike in comps. Margins expanded, and profitability nearly doubled, to $0.57 a share. Wall Street didn’t have a clue. The pros were projecting a profit of $0.42 a share on $215.5 million in revenue.

The market should be used to this by now: Lumber Liquidators Holdings Inc (NYSE:LL) has beaten Wall Street’s bottom-line targets by 16% or better every quarter for the past year. The chain of nearly 300 stores that specializes in hardwood planks and other flooring options raised its guidance, but we know the drill. Lumber Liquidators Holdings Inc (NYSE:LL) is going to make analysts look silly again in three months.

The report naturally bodes well for Trex Company, Inc. (NYSE:TREX). The leading provider of wood-alternative decking posts next week, and what’s good for one has been good for the other. Trex has also blasted through Wall Street estimates, beating quarterly profit targets by a double-digit percentage margin every single period over the past year.

It’s easy to see the appeal to Lumber Liquidators Holdings Inc (NYSE:LL) and Trex. They are thinking-investor plays on the housing market’s recovery. As real estate prices rise, and homeowners discover that they finally have equity in their homes, it’s easy to take on the dream to upgrade a property’s flooring, or extend a home’s living space by building an outdoor patio with weather-resistant materials.

Most investors will ignore Trex and Lumber Liquidators Holdings Inc (NYSE:LL). They’ll turn to The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) as the big plays on home improvement, and that could be a mistake. Even in this market recovery, analysts see The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) growing revenue at a 3% to 4% clip this year and next year. Lumber Liquidators Holdings Inc (NYSE:LL) and Trex are expected to expand their sales three to four times faster.

It’s true that Lumber Liquidators and Trex aren’t as cheap as they used to be, but their near-term prospects are brighter than the superstore chains that aren’t exactly bargains, either.

The Home Depot, Inc. (NYSE:HD) stock is trading for 21 times this year’s earnings. Faster-growing Trex is fetching just 18 times this year’s projected profitability, and that’s in line with the multiple at Lowe’s. Lumber Liquidators commands the richest premium at nearly 40 times the midpoint of its new bottom-line guidance for this year.

The valuations are lofty across all four players, but at a time when the market is dishing out healthy premiums, the smarter bet has to be the companies that are growing faster. Trex and Lumber Liquidators are the ones to watch here.

The article Sell Home Depot Stock, Buy Trex and Lumber Liquidators 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!