Yahoo Finance Should You Follow This Trend For Lexicon Pharmaceuticals Inc (NASDAQ:LXRX)?
Lexicon Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the development and commercialization of pharmaceutical products for the treatment of human diseases. Lexicon Pharmaceuticals’s insiders have invested 295.42k shares in the large-cap stocks within the past three months. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A two-decade research published in The MIT Press (1998) showed that stocks following insider buying outperformed the market by 4.5%. However, these signals may not be enough to gain conviction on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares. Check out our latest analysis for Lexicon Pharmaceuticals
Which Insiders Are Buying?
There were more Lexicon Pharmaceuticals insiders that have bought shares than those that have sold. In total, individual insiders own less than one million shares in the business, or around 0.34% of total shares outstanding.
Does Buying Activity Reflect Future Growth?
Analysts’ expectations for revenue growth over the next 3 years of 219.94% provides a very buoyant outlook for the business which is consistent with the signal company insiders are sending with their net buying activity. Delving deeper into the line items, analysts anticipate a limited level of revenue growth next year, but a double-digit earnings growth at 28.06%. This may mean the company has effectively managed costs in order to pump up earnings growth. Insider confidence in the company could be signalled by their net buying activity as they expect sustained growth moving forward. Or they may believe share price is below intrinsic value, offering an opportunity to buy.
Can Share Price Volatility Explain The Buy?
Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. In the past three months, Lexicon Pharmaceuticals’s share price reached a high of $13.69 and a low of $7.8. This suggests meaningful movements in the share price with a change of 75.51%. This movement is meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.
Next Steps:
Lexicon Pharmaceuticals’s insider meaningful buying activity tells us the shares are currently in favour, which is relatively consistent with expected earnings growth, along with the high stock price volatility over the same time period. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. there are two fundamental factors you should further examine:
Financial Health: Does Lexicon Pharmaceuticals have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Lexicon Pharmaceuticals? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
