Lexington Realty Trust Stock Shows Every Sign Of Being Significantly Overvalued

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GF Value
Jun 11, 2021
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The stock of Lexington Realty Trust (NYSE:LXP, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $12.925 per share and the market cap of $3.8 billion, Lexington Realty Trust stock shows every sign of being significantly overvalued. GF Value for Lexington Realty Trust is shown in the chart below.

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Because Lexington Realty Trust is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Lexington Realty Trust has a cash-to-debt ratio of 0.11, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks Lexington Realty Trust’s financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Lexington Realty Trust over the past years:

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Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Lexington Realty Trust has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $342.2 million and earnings of $0.72 a share. Its operating margin is 30.80%, which ranks worse than 67% of the companies in REITs industry. Overall, the profitability of Lexington Realty Trust is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Lexington Realty Trust over the past years:

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Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Lexington Realty Trust is -8.8%, which ranks worse than 80% of the companies in REITs industry. The 3-year average EBITDA growth rate is 2.4%, which ranks in the middle range of the companies in REITs industry.

One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Lexington Realty Trust’s ROIC is 3.22 while its WACC came in at 4.72. The historical ROIC vs WACC comparison of Lexington Realty Trust is shown below:

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Overall, the stock of Lexington Realty Trust (NYSE:LXP, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Lexington Realty Trust stock, you can check out its 30-year Financials here.

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