The stock of Eli Lilly (LLY 2.65%) has been on a wild ride in 2023. Due to declining COVID-19 antibody sales, a massive drop-off in the sales of the cancer medicine Alimta due to generic competition, two major regulatory setbacks in Alzheimer's disease and ulcerative colitis, and a spate of price reductions for its insulin franchise, Lilly's shares kicked off the year by falling nearly 16%. 

Since hitting this intra-year low point back in March, Lilly's shares have been in rebound mode leading into the company's highly anticipated 2023 first-quarter earnings report. In fact, the stock was up by 2.38% before this event. With the drugmaker's first-quarter earnings report now a known quantity, is its stock still a buy? Let's dig deeper to find out. 

First-quarter highlights and lowlights

In the first quarter of the year, Lilly booked worldwide revenue of $6.96 billion, an 11% decrease compared to the same period a year ago. The drugmaker attributed this double-digit revenue decline to a mix of lower realized prices for the diabetes medications Humalog and Trulicity, lower sales volumes for its COVID antibodies, and unfavorable foreign-exchange rates during the three-month period. 

On the plus side, sales of newer growth products soared in the first quarter by 18% to $4.56 billion, led by Trulicity, the type 2 diabetes medications Jardiance and Mounjaro, and the breast cancer treatment Verzenio. This blistering growth rate, however, was offset to a degree by another hefty drop in Alimta sales (down 83% year over year). 

Perhaps the most important figure in this report is the quarterly sales of its closely watched diabetes medication Mounjaro. For the three-month period, its sales clocked in at a staggering $568.5 million, up from $279.2 million in the fourth quarter of 2022.

What's important to understand is that Mounjaro is widely expected to become Lilly's most important growth driver over the balance of the current decade. The key reason is the drug's potential to add a highly lucrative weight loss indication to its label.

Keeping with this theme, this meteoric rise in the drug's quarter-over-quarter sales is likely the result of it being used off-label for weight loss. Longer term, Wall Street analysts expect Mounjaro to eclipse $25 billion a year in sales, thanks largely to its potential weight loss indication.

The drug is currently in the process of being submitted for review to the Food and Drug Administration in this setting. A regulatory decision for this all-important weight loss indication is expected before year's end.   

Is Lilly's stock a buy?

Lilly's shares raced higher in 2022 in response to Mounjaro's potential to become a best-in-class weight loss medication. As a result, the drugmaker's shares have been trading at a staggering premium over the past year:

LLY PE Ratio Chart

LLY PE Ratio data by YCharts. PE = price-to-earnings ratio.

This nosebleed premium could be a mirage, however. In brief, Mounjaro's enormous commercial potential could mean that Lilly's shares are already trading at a 2025 earnings premium of around 4.5%, which is a tad high for a big-pharma stock but undervalued relative to a risk-free asset such as a U.S. Treasury bill. And by 2030, the pharma company's stock might even be trading at an earnings premium over 7% (all else being equal), putting it in bargain territory.

All told, Lilly's stock is arguably a strong buy for investors with a long-term outlook due to Mounjaro's monstrous growth potential in the years ahead.