Cramer crowns Azek stock a 'top idea for 2021'

  • CNBC's Jim Cramer on Friday pitched Azek stock as a "top idea for 2021."
  • "Azek's got great management, great financials, and demand for their products is off the charts," the "Mad Money" host said.
  • "I bet they can keep beating the earnings estimates, and that translates into higher stock prices down the road," he said.

CNBC's Jim Cramer on Friday pitched Azek stock as a "top idea for 2021," citing the state of the home reconstruction market and growing interest in alternative building materials.

Azek a week ago posted a better-than-expected quarterly report and shares sold off anyway, declining nearly 4% over two days.

Cramer said the stock deserves respect, recommending investors add shares to their portfolio if it dips in the coming weeks.

"This is a simple story: Azek's got great management, great financials, and demand for their products is off the charts," he said on "Mad Money." "I bet they can keep beating the earnings estimates, and that translates into higher stock prices down the road."

Azek makes building products that Cramer described to be "the answer to every homeowner's prayers." Smack dab in a home construction and rehab boom, Azek's weather-resistant material is marketed as a lower maintenance cost alternative to traditional materials like lumber.

The company made its public debut just before summer and its stock is up 29% from its June debut. The $35.06 per share close Friday is down about 17% from the highs it traded at in August. Cramer likes the stock for the growing total addressable market in composites, Azek's capturing market share, expanding gross margins, improving balance sheet and CEO Jesse Singh.

"Azek's got a great business that's taking market share, expanding its margins, and getting a boost from Covid as millions of people trapped indoors remodel their homes," Cramer said.

Wall Street values Azek at $5.4 billion, nearly half the $9 billion that its rival Trex is valued for. Azek shares are trading for 5-times its sales forecasts for 2021, which is a discount to the 8.8 price-to-sales multiple that Trek has.

Azek grew more than 22% in the quarter ended Sept. 30. The company recorded $899 million of revenue in fiscal 2020, up 13% from the prior year, which the company says was powered by higher sales in its residential segment. The residential business surged 17.7%, which offset the 7.7% decline in the commercial business. The company remains unprofitable.

Cramer thinks market players will get a buying opportunity after the lockup on insider selling, a period where insiders and early investors cannot sell shares, expired earlier this week. He contrasted that to the buying frenzy in DoorDash and Airbnb, the two Silicon Valley darlings that came public this week.

Azek shares will continue to face pressure as early investors unload their positions in the company, Cramer said.

"I think that's creating a terrific buying opportunity … and I think the stock will be able to turn around once it digests all the selling," he said. "The lockup expiration on Wednesday finished, and I think that you can use the subsequent volatility as an entry point."

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