What happened

Shares of the pharmaceutical titan Eli Lilly (LLY -0.03%) fell by as much as 3.6% on average volume in early-morning trading Wednesday. The drugmaker's stock has since recovered to a degree, but it was still down by 2.1% as of 12:38 p.m. ET today. 

What's sparking this sell-off? Lilly is scheduled to report 2023 first-quarter earnings ahead of the opening bell tomorrow. Investors are apparently concerned that the drugmaker's results could miss Wall Street's consensus targets for the three-month period. 

So what

This concern isn't totally without merit. The last time Lilly reported quarterly earnings, the company announced a 9% year-over-year drop in quarterly revenue, fueled by a stubbornly strong dollar, the loss of exclusivity for cancer medicine Alimta, a huge drop in COVID-19 product sales, and a modest miss for sales of its diabetes drug Mounjaro. 

What's important to understand is that Lilly is among the most expensive pharmaceutical stocks based on multiple valuation metrics. Investors bid up the drugmaker's shares over the course of 2022 on the belief that newer products like Mounjaro would easily overcome headwinds stemming from key patent expirations and a slowdown in coronavirus treatment sales.

Although there are some solid reasons to believe Mounjaro will indeed usher in a new era of growth for Lilly, investors seem to be growing impatient as a result of the company's premium-laden valuation. 

Now what

Is Lilly stock a buy on this weakness? It all depends on your investing horizon. From a long-term perspective, the stock might be incredibly undervalued. Mounjaro, after all, could eventually become one of the best-selling drugs of all time.

In the short term, though, this moody market might push Lilly's shares even lower if the company's first-quarter earnings underwhelm. Hence, it might be a good idea to wait and see what tomorrow brings before buying shares.