Why LGI Homes, Trex Stocks Reversed Despite Strong Earnings – Investor’s Business Daily

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LGI Homes (LGIH) reported stronger-than-expected first-quarter earnings Tuesday morning. Shares initially peeked out to a buy zone, but then reversed sharply as investors focused on the homebuilder’s weaker-than-expected revenue. Meanwhile, decking products maker Trex (TREX) neared a breakout.

LGI Homes’ Q1 earnings per share minus one-time items rose 73% to 57 cents, topping estimates for 52 cents. Revenue grew 36% $162.5 million as home closings grew 26% to 844 homes. But revenue was lighter than estimates for $167.8 million. Also gross profit margin was 26.7%, down a bit from 27.8% in Q1 2015.

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The Woodlands, Texas-based homebuilder’s profit spike benefited from a 7% rise in its average home selling price to $192,491, largely on changes in product mix and a favorable pricing environment. “We continue to see strong demand for home ownership across the country,” Chairman and CEO Eric Lipar said in a written statement.

LGI Homes shares rose to 30.35 after the opening bell, moving above a 29.87 buy point intraday for a second straight day. But the stock reversed hard, crashing more than 13%. It’s now down 8.7% at 27.01 on the stock market today.

Separately, Trex, the world’s largest maker of wood-alternative decking and railing  products, said Q1 revenue grew 9% to $131.7 million, just above analyst consensus for $131.4 million. EPS jumped 42% to 78 cents, well above Wall Street’s 65-cent target.

But Trex guided Q2 revenue to rise 8% year-over-year to about $145 million, topping consensus of analysts polled by Thomson Reuters for $150.25 million.

Trex kicked off a print and TV advertising campaign in early April that will increase costs this quarter, but the company hopes to gain market share from the wood decking and railing market.

Trex shares shot up as high as 50 soon after the opening bell, close to a 50.72 buy point in a nine-month first stage cup-with-handle base. But they erased gains and are down 6.3% at 43.19.

Continental Building Products (CBPX), a leading maker of wallboard and gypsum products, shot up to a 7-month high intraday on strong earnings released late Monday. Continental Building Products rose as high as 22.11, but were more recently up 5.6% at 20.77.

Last week, building products firm Martin Marietta Materials (MLM) and installation firm Installed Building Products (IBP) shot up to new highs on huge earnings growth. Martin Marietta Materials stock rose nearly 3% intraday while Installed Building Products advanced 0.8%.