AZEK - AZEK: An Unsustainable Reinvestment Rate Via Acquisitions Hid The Performance Problems

2024-03-21 09:02:25 ET

Summary

• AZEK has achieved double-digit revenue and profit growth over the past 5 years, but returns are low.
• The company's growth has been driven by acquisitions rather than organic growth, and at an unsustainable reinvestment rate.
• There is no margin of safety in the company's valuation. It is not an investment opportunity despite being a cash cow.

Investment thesis

The AZEK Company Inc. ( AZEK ) has achieved double-digit growth in revenue and PAT over the past 5 years. But I do not consider it a wonderful company. While it is a financially sound, its returns are low. Growth was due to acquisitions and undertaken at an unsustainable Reinvestment rate.

There is also no margin of safety based on both a single-stage and a multi-stage valuation model. I do not consider this an investment opportunity.

Business background

Although AZEK IPO in 2020, it has more than 30 years of operating history. The company today is an industry-leading designer and manufacturer of products that are focused on the Outdoor Living market....

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