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What Investors Are Learning From Retail and Software Companies

Motley Fool - Sat Mar 11, 2023

In this podcast, Motley Fool senior analysts Jason Moser and Ron Gross discuss:

  • Whether Costco Wholesale is ready to increase membership fees.
  • Salesforce focusing more on profitability.
  • Seeing light at the end of Okta's tunnel.
  • C3.ai's smaller-than-expected loss.
  • The latest from Target, Lowe's, Best Buy, and ZoomVideo Communications.
  • Two stocks on their radar: Samsara and T. Rowe Price.

Trex CEO Bryan Fairbanks discusses his company's opportunities to expand outside the U.S., the housing market, and what informs the guidance Trex offers to Wall Street.

Get a copy of our new free report, "Top Stocks For Rising Interest Rates," by going to fool.com/interest!

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on March 03, 2023.

Chris Hill: If you like your investing analysis with just a side of movie references, you're in the right place. Motley Fool Money starts now.

From Fool global headquarters. This is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill joining me on the show, Motley Fool Senior Analyst Jason Moser and Ron Gross. Good to see you as always gentlemen.

Ron Gross: How are you doing Chris?

Chris Hill: We've got the latest headlines from Wall Street. Trex CEO Bryan Fairbanks is our guest, and as always, we've got a couple of stocks on our radar. But we begin with a big week for big retail. The holidays were decidedly mixed for Costco, second-quarter profits were a little bit higher than expected overall revenue, a little bit lower. Shares of Costco down about 3 or 4% this week Ron, which is not a lot, but this did seem like a good quarter for them.

Ron Gross: The quarter itself was pretty solid, but as you noted, revenue and comp sales were a bit lower than hoped for. When you're priced at more than 30 times earnings for a retailer, you're going to get smacked a little if you don't put up numbers that at least meet expectations and that's what's happening here. But in a vacuum, the quarter remained perfectly fine with net sales up 6.5%. Comp sales up 5.2%, with 5.7% in the U.S. So pretty good. Traffic was up 5% worldwide, 3.7% in the U.S., and the average transaction was slightly worldwide and even better in the US up 2%. So not too bad. Their membership fee is very important to this company because most of that falls right to the bottom line, and that's how they make a significant portion of their operating profits.

Membership fees up 6.2%. One of the troubling areas was e-commerce, which was down almost 10% and that's reflecting softening demand for big-ticket discretionary items, things like TVs, which account for over half of those online sales. So we need to keep an eye on that. Renewal rates. Costco continues to offer a great value proposition for members. People renew time and time again, 92.6%. Renewal rates, very, very important. Net income up 13%, so all pretty good. No guidance offered as usual, but they did say that they saw inflation coming down as the quarter went on, even more so toward the end of the quarter. So that's some positive indications, not just for Costco but perhaps for inflation watchers in general.

Chris Hill: They're going to raise the membership fee this year, aren't they? If history is any guide, this is the year for them to do that.

Ron Gross: Yeah, the company has averaged five years and seven months between membership price increases and that puts us at last January, just a month and a half ago or so. So I would expect that sometime in the near future.

Chris Hill: Shares of Salesforce up nearly 15% this week after the cloud software companies revenue was solidly higher than expected in the fourth quarter. Salesforce CEO Marc Benioff, Jason, he sounds like someone who is increasingly focused on the company being profitable.

Jason Moser: I think that's fair to say. This was a much-needed quarter for Salesforce and probably even more so for Marc Benioff. I do think it's less about the actual quarter, which was good though, and more really about the guy going forward because we're getting signs that Benioff here is paying attention to the activists rumblings that have been going on over the past month or so. But when you look at the numbers in the quarter was a good one. Revenue of $8.3 billion. That was up 17% from a year ago, excluding currency impacts. Non-GAAP earnings per share of $1.68. There was a mark-to-market write-down on some of the company's strategic investments that knocked about $0.25 off that number.

But really going back to that guide, I think that's what has the market really excited about the future here. Revenue itself guiding for 34.5% to $34.7 billion in revenue for the year, up around 10%. But when you start getting down to that bottom line, that's when it gets more exciting. I think for investors, Non-GAAP operating margin guidance around 27%, that would be a four-and-a-half point improvement. Four-and-a-half percentage point. I'm not talking about bibs. Four-and-a-half percentage points improvement from this past year. In further, they ramped up the repurchase program from 10-20 billion. Benioff came across much more as an operator this time around and what we're used to in I think the focus on operational efficiencies, cutting the fat, boosting margins, and ultimately shareholder value through things like share repurchases, refined stock-based compensation goals.

Those are all being received very well. These are good signs. Granted, it likely took some of that activist pressure really to get the ball rolling, but it is the right thing to do and it's good to see that he knows this. I think the thing that investors want to keep an eye on is that sense of urgency. There is this sense of urgency in the call or is putting the cart before the horse wants to become the biggest, most profitable software company. They're trying to accelerate this plan two years ahead of schedule. That's great. I love the enthusiasm, but sometimes that can force you to make some short-term decisions that drive the numbers which can have dire, unintended, longer-term consequences. So just keep an eye on that. But absolutely a good quarter for the company what Wall Street wanted to see.

Chris Hill: Let's go back to retail. Target celebrated the holiday is by selling a lot of non-holiday stuff. Fourth-quarter profits were higher than expected, driven by household items, health, and beauty, and groceries, Ron, shares flat for the week in part because of the conservative guidance for the year ahead.

Ron Gross: Yeah. As you say, better-than-expected results, but still somewhat, we can say cautious spending from consumers. The story here remains that they're still working through their excess inventory from the buildup during the pandemic and the discounting that's necessary to move that merchandise, especially bigger ticket items like televisions. They're making their way through that, but it doesn't happen overnight. So here revenue was only up about 1.3%. So somewhat lackluster comp sales up even less than that 0.7% for the quarter. Increase in guest traffic offset by a decline in digital sales. They're same-day services that they offer in-store pickup, drive-up, the shipped offering, that represents more than 10% of sales.

That was up about 4.3%, not too bad there, as you mentioned, strength in several of the categories including beauty and essentials. Operating margins were weak, lots of costs in there, inflationary costs, higher merchandise costs, higher wages, even higher inventory shrink, which is either shoplifting related or merchandise that for some reason or another can't be sold to the consumer. To overall adjusted EPS down 41%. Again, it's expected, but it's weak at the same time. They aren't expecting a steep improvement in the business anytime soon. Returning to pre-pandemic profitability could take nearly two years is what they're saying. I remain a fan of this company, but it's going to take some time for this to work out 19 times earnings, 2.6% yields, it might pay to wait around and see how they do.

Chris Hill: Continuing the theme that we've been hearing from major retailers, Lowe's also issued cautious guidance for the year ahead. This is on top of fourth-quarter revenue being lower than Wall Street analysts were expecting though, when you consider how much lumber factors into Lowe's business, Jason, I'm not sure why anyone was particularly surprised by this.

Jason Moser: Yeah. The home improvement companies play into a very large and long-term market opportunity. Obviously, Lowe's is certainly going to get its piece of the pie. I wouldn't call this a great quarter by any stretch, but it wasn't bad given the current state of things. The numbers, revenue, $22.4 billion. That was up 5% from a year ago. Comps down 1.5% with U.S. comps actually down 7/10th of a percent. Though it's worth noting that management did see these comp trends start to improve meaningfully in January after the holidays. So maybe people got that holiday spending out and then reprioritized the home stuff at the beginning of the New Year. But ultimately adjusted earnings per share of $2.28, and that adjusting for some costs and the sale of their Canadian business so long Canada we hardly knew.

No more Lowe's there for Lowe's. But hey, listen, moving forward. Average ticket was up 4.8%. That was driven partly by-product inflation and higher pro sales. That was offset by transaction declines over 5.5%. Very common to see that those two metrics play against each other in these types of environments. They did see some encouraging growth in the pro-business 10% growth there. They also noted that 70% of the pros surveyed are booked out as much or more so than they were in January a year ago. So it does look like demand in this space is hanging in there. It's been a challenging twelve months for the company with the stock down around 16% or so. But Ellison has continued to bring that share count down. It's down 27% now since he took over in 2018. That's going to continue. Hopefully, there'll be another avenue to return some value to shareholders.

Chris Hill: But this seems like something to watch, not just with Lowe's but with Home Depot and other major retailers. This thing you touched on Jason about. What is driving the comp sales and so much lately for so many retailers. It has been inflation. It has been higher prices rather than a massive uptick in traffic.

Jason Moser: Yes. You mentioned lumber and I think that's an important point to note there because when you see lumber inflation start pulling down, yes, that impacts their top line, which can be seen as bad, but the flip side of that, it actually helps margins. We pointed that out with Home Depot a week or two ago and that same dynamic is a play for Lowe's as well.

Chris Hill: After the break, we've got the latest in software, AI, and more so stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Ron Gross. It was a good week for Okta shareholders. The cloud identity software company wrapped up its fiscal year with a strong fourth quarter report and nice guidance for 2023. Shares of Okta up 16% this week, Ron.

Ron Gross: Yet still 50% off from its 52-week high. It's been a rough ride for Okta over the last couple of years. We had a breach by a hacking group, integration problems for the acquisition of Auth0. Obviously, all this taking place during a slowdown in technology spending. But I think we may be seeing some light at the end of the tunnel here. This was a solid quarter with revenue up 33%, subscription revenue up 34%, backlog up 12%. They recorded record operating cash flow of $76 million. That is a record, but it's not that much money for a company of this size.

Just be aware of that. Free cash flow, $72 million, so they are bringing in cash, but of course, they need to continue to do that and grow that to support the stock. Seventeen percent growth in customers is a nice way to do that. Customer base stands at 17,600 right now, reducing headcount by 5%, trying to reduce costs, guidance was solid, as you noted, the 16-17% revenue growth. That puts them at around six times sales, if that's the metric that floats your boat. But it's still a sales metric, not an earnings metric.

Chris Hill:C3.ai posted a loss in the third quarter, but it was much smaller-than-expected. C3.ai's revenue was also higher-than-expected, and shares of the enterprise AI company up 25% on Friday. Jason, I know they come by this honestly, they are in the business of artificial intelligence, but I also think it's smart of them that their ticker symbol is AI.

Jason Moser: Maybe it helps. Doubt that it hurts.

Chris Hill: It goes in the plus column.

Ron Gross: For now.

Jason Moser: We're dating ourselves here, of course. You remember in Fletch, it's all ball bearings nowadays. Well, Chris, it's all AI nowadays. All you have to do is say it and the market just goes running right toward you. Clearly, they're benefiting from this narrative and I don't think there's any denying AI's opportunity to coming years. This company should benefit from that. The performance for the quarter was encouraging, revenue of $66.7 million, exceeded their internal guidance. Of course, they're still chalking up losses. That's no surprise, but they do remain on track to hit their target of non-GAAP profitability by the end of fiscal '24. That's coming up soon. The customer count increased to 8% for the quarter.

I think it's really important for investors to note. You got to remember this is a business still in transition. They recently made the move toward a more consumption-based revenue model in order to better align themselves with their customers' needs. This is going to play out on the financials in the coming quarters. It impacts growth, it impacts that annual recurring revenue, and that's all to be expected, that they've been very explicit with this. But they continue to execute on their partnership strategy, expanding relationships with the bigs like AWS, Google Cloud, and Azure, along with companies like Accenture and Booz Allen Hamilton, not to mention one of the biggest customers on the planet, the USG, that's the US government, Ron.

Thomas Siebel set on a call, CEO and Founder, Thomas Siebel said, "There's a genuine optimism in the marketplace for our solutions and the overall business sentiment appears to be substantially improving." That's a market change from just a year ago when really they were talking about lots of headwinds. Listen, I think at the end of the day, once this company gets to profitability, sustainable, profitability talking about steady-state operating margins in the 20% range, there's a lot of potential here. But I think one thing you've got to keep an eye on here, it's a young company, keep an eye on stock-based compensation, it's a young business. These aren't unique concerns to just them, but history shows the market will only put up with it for so long.

Ron Gross: If you don't like it, you can always put it on the under hills.

Chris Hill: Best Buy's results in the holiday quarter look good, but they took a back seat to the fact that Best Buy's' guidance for 2023 calls for a revenue drop in the low to mid-single digits. Where do you want to start, Ron?

Ron Gross: I wouldn't necessarily use the word good when describing these results, but they were better than expected, but you are right that guidance was really hard to get excited about. Take you through some of the metrics, comp sales down 9%, largest drivers or declining computer, home theater appliance, and mobile phones. That was partially offset by some growth in gaming and tablet categories, but really weak for the most part. Domestic comp sales down 13%, adjusted operating margins down to 4.8% from 5.1. Also getting hit on the margin line, that's due to lower product margins, partially offset by favorable service margins. That's looking pretty good from a service perspective. But they had higher costs. They had higher profit sharing revenue from the company's private-label and co-branded credit cards.

That is actually favorable, good to see. But overall, we are seeing weakness in margins, which led to adjusted earnings being down 4.4%. Now they did increase the quarterly dividend by 5%, and that gives you now a 4.3% yield. That's not too shabby if you believe in the total return potential of Best Buy because if you get the 4% yield, but you'll lose money on the stock, you haven't really gained that much. If you believe in the future of Best Buy, that 4% can be tempting. When discussing guidance management said we believe the macro and industry backdrop will continue to be pressured in fiscal '24, and they did guide for sales decline between 3-6%. Hard to get excited about that. Only trading at 14 times, 4% yields, could be interesting if you want to take a risk.

Chris Hill: Shares of Zoom video down a bit this week, despite the fact that fourth-quarter profits and revenue came in higher than Wall Street was expecting. Though, to be fair to Wall Street, Jason, revenue growth of 4% is a lot slower than what Zoom has produced in the past.

Jason Moser: Boy, you said it, Chris. That's it in a nutshell. This is a good business, but the question for investors now is purely about growth and where it's going to come from for this company. Revenue, $1.1 billion, it that was up 6% excluding currency impacts, earnings per share of $1.22 down slightly from a year ago. You're starting to see this interplay between the enterprise and the online segment of the business. The enterprise is the gist of really the future of the business. That's where they involve their direct sales teams to work with those enterprise customers. That segment revenue was up 18%, customer growth was up 12%.

The number of customers contributing more than $100,000 in trailing-12-month revenue, that was up 27% from a year ago. Net dollar expansion rate down a little bit, 115% now. But again, back to that enterprise versus online customer. Online is the higher margin because it's basically automated. It doesn't require as much work. Enterprise still represents just a bit over half of revenue. Online clearly still matters. What we're seeing here is a trend in the online segment continues to decline. That was down 10% for the quarter. Starts to make you wonder is it's the top of the fall for this company, and the top of that funnel might start running a little bit light guiding for around $4 and 15 cents for the current fiscal year, that puts shares around 17 times full-year estimates. That's seems cheap, but I got to ask where that growth is coming from, Chris.

Chris Hill: Guys, we'll see you a little bit later in the show. Up next, we'll talk home improvement housing and more with Trex CEO, Bryan Fairbanks. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Bryan Fairbanks is the CEO of Trex, a leader in composite outdoor decking materials. Their products are made of 95% recycled materials, making Trex one of the largest plastic film recyclers in the country. I caught up with Fairbanks earlier this week to get his thoughts about the company's ability to expand outside the US, what keeps them up at night, and the art and science of offering guidance to Wall Street. But I started the conversation by asking him, how the recent slowdown in the housing market has affected Trex?

Bryan Fairbanks: We're not particularly tied to the new housing marketplace. We're much more tied to repair and remodel. Approximately 90%, 95% of our business is in that repair and remodel. We look at the new home spend as an economic indicator, but not directly correlated particularly well with repair and remodel products. When we got into the second half of this year, we did start to see some changes from an overall economic perspective, which I expect will carry out into 2023 as well, some of that driven by the new home markets.

Chris Hill: One of the things we've been talking about at the Motley Fool this week is the home improvement industry, Home Depot and Lowe's out with their latest earnings results recently and both companies being pretty cautious with their guidance. Let me ask a cousin of the question I just asked you. How how does the current environment of home improvement bode for Trex?

Bryan Fairbanks: If the Lowe's is just out today, I've not seen their numbers but I am familiar with The Home Depot numbers the other day, where they talked about basically being flat for 2023. Coming off of the pandemic gains along the way and some of the economic uncertainty that's out there. I feel so that's pretty good performance in this marketplace. Overall, I was actually quite encouraged when I saw what their expectations were. I wouldn't be surprised if Lowe's is in the same place with it, that that repair and remodel consumer will be limited in their move-up capability from a new home perspective, or just moving up to a larger home. Therefore, they will spend more money on their existing home, that will drive the repair and remodel spend.

Chris Hill: I'm not going to ask you to speak on behalf of Home Depot and Lowe's, they've certainly got management teams that can do that. I am curious though, because it seems like part of the story with Home Depot and Lowe's is the input costs that they are dealing with. When you look at the price of lumber coming down the way it has, it's obviously going to affect businesses like Home Depot and Lowe's that deal with a lot of lumber. All of that is prelude to this question. When it comes to offering guidance, how much of it is formed by any level of uncertainty around input costs? Because it seems like the firmer, the grip you have on what your input costs are going to be, maybe the greater the confidence for the guidance that you can give.

Bryan Fairbanks: I only can really speak to how we do it here at Trex, looking at guidance. We've got a pretty good capability within our supply chain organization to look forward and understand what's happening in the marketplace. The period of time we went through 2020 through 2021 was unprecedented increases in input prices. But as we get back to more of a normalized economy, we see signals in the marketplace. If we're going to see our input prices increase or decrease significantly along the way. Right now, we see signs that there will be continued moderation, not necessarily deflation of what's occurred over the past couple of years, but a moderation of where those overall costs are.

Chris Hill: One of the things that we've seen for businesses across the spectrum of industries over the past, let's just call it 8-12 months, is a ratcheting down on marketing spend. Without getting too deep in the weeds, how do you and your team think about marketing spend when it comes to Trex? How much of it is aimed at the consumer and how much of it is aimed at professionals?

Bryan Fairbanks: One of the key competitive advantages is the Trex brand itself. We have talked in 2023 that we will go back to a full marketing load, and most of that marketing is directly aimed at the consumer. We want to build that relationship with the consumer. When they're deciding on their decking projects, they're wanting to use the Trex products. They see us in the marketplace, the branding drives them in. They use our website, the various tools that we have there, and we make that a sticky relationship.

Over the past couple of years, we've backed away from that full load of marketing, which tends to be about 5-5.5% of sales, because we didn't need to generate more demand. It was actually harmful to generate more demand when we were in a sold-out condition. But we're back to more of a normalized market now. With the strength of the Trex brand, it's important that we get back to that normalized marketing level and continue to develop that relationship with our consumers.

Chris Hill: In terms of your actual products, how are things in the supply chain these days?

Bryan Fairbanks: Supply chain is, I guess normalized, is probably the best way to look at it from Trex shipping out to our customers. Now the channel itself, they went through a significant adjustment in 2022. First half of the year, they had really all of the product they needed and if product was available to them, they were going to take that product. The last thing that anybody in the channel wanted to do, was miss a sale. They built excess product in the marketplace. We get to the second half of the year, was understood how much inventory was in the channel.

We had to have a fairly significant adjustment into the outlook that we had for the back half of the year. We need to pull about $200 million of the inventory out of the channel. The good news is we did that aggressively, Q3 and Q4, we completed that inventory reduction in our channel and finished the year with the optimum level of inventory ready to go into 2023. There has been a significant adjustment from the pandemic boom to the other side of it of knowing they can get product when they need that product, and knowing that we will be here for them.

Chris Hill: I want to think outside of the United States and let's just start with this. At the moment, what percent of Trex's business is here in the United States versus the rest of the world?

Bryan Fairbanks: Over 90% of our business is in the United States today, so it is by far the largest driver of our performance on an overall basis. International markets are important for us for long-term growth. We see great opportunity in countries where they have higher GDPs, generally higher family incomes, and an interest in outdoor living. That brings us into some of the largest economies, into Europe, up into Scandinavia, as well as Australia. We shipped to about 45 countries around the world. But those major countries I talked about are the largest driver of our international success.

Chris Hill: Is the interest in products similar in European countries as it is here in the United States? Is what's popular for US customers also equally popular in Europe?

Bryan Fairbanks: Where there's a desire for outdoor living, there is a desire for outdoor decking. We have seen great success with our transcend product when we took that to the European markets and Australia right around 2012. A key difference that Trex has between those markets in North America, we've been branding and people have seen our products in North America for over 30 years now. Whereas in these newer markets, we've only been branding a company maybe for 5-7 years along the way. We're much newer to those countries and we have a long way to go from a branding perspective to get the same visibility that we have here in North America.

Chris Hill: I'm thinking now of a conversation I had with a college buddy of mine last fall. He's a home-builder. I just asked him unprompted, what percent of your customers are interested in Trex products? I didn't give him any context, I didn't didn't tell him I'm a shareholder, I just asked him. Without hesitation, he said 100%. I said, so what was that number 10, 15 years ago? He said it was much lower. It was less than 20%. That's obviously just one anecdote, but it does make me wonder, what is the education curve like? What are you and your team building into your expectations? Because it does to the point you just made, you've had 30 years to build up the reputation of Trex in the United States. In some of the countries you are looking to expand into, you're the new kid on the block. I'm assuming there's both an education curve and maybe even a higher marketing spend to get the word out.

Bryan Fairbanks: If we look back 10-15 years ago, it was all about educating that consumer. In many cases, they were making that decision when they went to the retailer or when they went to the contractor. Today, that consumer, in many cases, they're doing research ahead of time. These are large ticket purchases they're making. They're doing their online research. A lot of cases are already know of the Trex brand. But if they don't, when they go online to do that research, they are going to find Trex in the marketplace and then we can drive them to help them build a deck, help them find the contractor, do the design for them, show them the various colors we have. Offer samples so that they can show that up against the signing of their house. Our desire is to make it easy for that consumer to be able to get to Trex material and then build their Trex deck. The education part of it has come a long way over the past 10 years. But also because that consumer is much more actively involved in deciding what products they're going to use on and in their home.

Chris Hill: Let me go to the other side of the supply chain for a minute. It's the materials that you and your team use to build these products, to what extent has that evolved over the past few years?

Bryan Fairbanks: One of the very unique things about Trex is we use 95% recycled and reclaimed material in our product. Our product is roughly speaking about half wood and half recycled polyethylene plastic. We've been doing that for over 30 years. Really the only change that we've seen from that perspective is there's more companies that are interested in using these recycled plastics. When we started doing it on day one, it was a low-cost materials stream that we could get our hands on and still deliver a great product. Today, there's a lot of ESG benefits and it's something that the consumer is looking for in making sure that they are using products that have real green credentials.

Chris Hill: What keeps you up at night these days in terms of your business? I don't want to get into your personal life, Bryan, but in terms of your business, what's keeping you up at night?

Bryan Fairbanks: From a business perspective, one of the key things is as we come through the pandemic, where building products were sold out in a lot of places. Getting the channels refilled again, getting ourselves back into new product development, which we've launched two new products over the past six months. Or transcend lineage, we launched back in May. Then our signature decking product line, which really mimics the look of real wood, but delivers the green and performance characteristics of composite decking along the way. Making sure that those get brought into the marketplace, people were able to see that and understand that Trex is bringing real innovation to the composite decking marketplace.

Chris Hill: Obviously, decking is the bread and butter of the Trex business. But as you've alluded to, there's an increasing number of products that your company offers, including outdoor furniture. I'm not asking you to spill any trade secrets, but I am curious if you could pull back the curtain a little bit and share how the new product process works at Trex. What happens for something to go from an idea that maybe ends up on a whiteboard in a conference room somewhere to Trex deciding as a business, this is actually going to be a new product line that we are going to invest in?

Bryan Fairbanks: That's a great question. The majority of the cases, the new product ideation side of things is going to start with our marketing team, working with our contractors, working with our channel partners but then also people who are intending to build a deck and people who have already built a deck. We've got a strong group of individuals that help us with market research to understand what those new trends are at the marketplace. We understand where we need to send our R&D and what they need to be looking at.

These generally are not things that we can do over a very short time period. There's new technologies that are involved. With the performance that we've seen from the Trex product. Anything new that we bring to the marketplace, we understand the expectations are extremely high. We want to make sure that we've got the right engineering in any new product that comes to the marketplace. We blend that marketing team and the research with R&D and then finally into production so that once we're up in launched, we can be running that at good rates and yields and achieve the profitability.

Chris Hill: Coming up after the break, Jason Moser and Ron Gross return. They got a couple of stocks on their radar, so stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill here with Ron Gross and Jason Moser. We have talked so much on this show about rising interest rates. As investors we know, there are industries that thrive when interest rates rise.

Our investing team has put together a special report highlighting five stocks they think are fit for this environment right now. The report is free just for trying out Motley Fool Stock Advisor, which comes with its own membership fee-back guarantee. You get 30 days to decide whether the service is a good fit for you. Even if you cancel, the special report is yours to keep. Just go to fool.com/interest to get your copy of the report. Top stocks for rising interest rates. Again, that's fool.com/interest. Let's get to the stocks on our radar. Our man behind the glass, Rick Engdahl is going to hit you with a question. Moser, you're up first, what are you looking at this week?

Jason Moser: Samsara ticker is IOT. Remember this was my radar stuff from the beginning of February. The company helps its enterprise customers connect buildings, equipment cards, and other facilities, which ultimately helps them work better, save money and be more efficient, enhanced safety, all of that good stuff. Earnings came out Thursday after the market closed and the markets receiving those results very well. Ended the year with annualized recurring revenue of $795 million is up 42% from a year ago. Quarter 4 revenue, $187 million up 48%. They now have $1,237, $100,000 plus annual recurring revenue customers that was up 53%. They also have 51 one million dollar plus ARR customers up 65% from a year ago. Guiding for current-quarter revenue to be $190-192 million, representing growth of 33-35%. Looks like we know where the growth really is, Chris, and it's with Samsara.

Chris Hill: Rick, a question about Samsara.

Rick Engdahl: No, just a question for Jason. Second time you pulled this, are you just having a commitment issues, Is that the thing you're into? Why is this just on your radar?

Jason Moser: Well, because this isn't an earnings Palooza episode proper. We have an interview I wanted to include another earnings story and this one really stood out.

Chris Hill: Ron Gross, what are you looking at this week?

Ron Gross: Courtesy of my friends over at our new dividend investors service, I'm looking at T. Row Price, T-R-O-W, global investment management company roots back to 1937, $1.3 trillion of assets under management. Mutual funds advisory services, separately managed accounts, they do it all. Now, economic headwinds. The bear market certainly has weighed on the business. 2022 results were relatively weak, but we think once the market resumes upward trajectory, once it resumes the upward trajectory, I think investors will come back in. T Row will resume its upward trajectory in terms of earnings, they've increased the dividend for 36 years, 4.4% yield.

Chris Hill: Rick, a question about T Row price.

Rick Engdahl: Yeah. They're pulling the strings on my kid's 529 plan. Is there anything I can do to help them out?

Jason Moser: Just keep giving them money, please.

Rick Engdahl: Okay.

Chris Hill: What do you want to add to your watch list, Rick?

Jason Moser: I'm going to have to go with the 529 plan.

Chris Hill: Nice. Jason Moser, Ron Gross, guys, thanks for being here.

Ron Gross: Thanks, Chris.

Chris Hill: That's going to do it for this week's Motley Fool Money radio show. This show is mixed by Rick Engdahl. I'm Chris Hill, thanks for listening. We'll see you next time.

Chris Hill has positions in Costco Wholesale, Home Depot, Lowe's Companies, Okta, Target, and Trex. Jason Moser has positions in C3.ai and Home Depot. Rick Engdahl has positions in Best Buy, Costco Wholesale, Home Depot, Lowe's Companies, Okta, Salesforce, Target, Trex, and Zoom Video Communications. Ron Gross has positions in Costco Wholesale and Target. The Motley Fool has positions in and recommends Accenture Plc, Best Buy, Costco Wholesale, Home Depot, Okta, Salesforce, Target, Trex, and Zoom Video Communications. The Motley Fool recommends Booz Allen Hamilton, C3.ai, Lowe's Companies, Samsara, and T. Rowe Price Group and recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.

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