Investors Fired Up Over CEO’s Insider Purchase of Lexington Realty Trust Shares

After trading down all day, shares of real estate investment trust Lexington Realty Trust (NYSE:LXP) jumped nearly one full percentage point after-hours Monday, after it was revealed that the company’s CEO, Wilson Eglin, acquired 50,000 shares of the company earlier in the day.

Acquired at $8.96 per share, the 50,000 shares Eglin bought bring his combined stake in Lexington to 1,860,489 shares — about 0.79% of shares outstanding. The purchase follows a smaller, 25,000-share purchase by the company’s CFO, Patrick Carroll, last week (at $8.97 per share). Carroll’s stake is roughly one-third the size of Eglin’s.

Sizeable buys by two of Lexington’s top executives are the kind of news calculated to stoke investor optimism. But should you be optimistic?

What does it mean to you?
Not necessarily. For one thing, while the CEO and CFO may be buying Lexington stock, other insiders are selling. So far this month, the two buys already mentioned have been outweighed by no fewer than five separate insider sales. Company Chairman Robert Roskind sold as many shares as his CEO bought — 50,000 — last week. Chief Investment Officer Richard Rouse sold even more than the CFO sold — 30,000.

As a result, over the past two weeks, insider trading activity has actually been slightly negative.

For another thing, the valuation at Lexington simply doesn’t look compelling. The stock trades for more than 17 times earnings. Yet according to data from Yahoo! Finance, analysts who follow this company are predicting earnings growth of barely 2% annually over the next five years.

Granted, investors don’t ordinarily invest in realty investment trusts for the growth alone. They want a dividend — and Lexington pays a big one, 7.6% annually according to Yahoo! Finance. If growth isn’t something that concerns you, therefore, then the ability to earn a sizeable income stream from owning a share of Lexington might be appealing.

Just don’t buy it just because “the insiders are doing it” — because not all of them are.

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