It's been a great year for Eli Lilly (LLY -2.03%) shareholders. In fact, it's been a great three years. Lilly stock has raced from a price of $130 per share at this time of year in 2020 to $568 now, peeling back just a bit from its early October record high of $629.97. Call it the perfect bullish storm.

The question is, can the stock do it again? The market's certainly excited about the prospect of Lilly's diabetes treatment Mounjaro also being approved as a weight-loss drug -- perhaps even before the end of this year.

Novo Nordisk's similar Wegovy won approval from the Food and Drug Administration as an obesity treatment back in 2021. And while that company's comparable Ozempic is only officially approved to treat type 2 diabetes, it's showing success as a weight-loss option as well. All of this bodes well for the potential approval of Lilly's Mounjaro as a means of fighting off fat.

All the hype surrounding this possibility, however, creates a dangerous scenario for interested investors.

Weight-loss drugs are the driving force

Although Mounjaro's been on the radar of healthcare investors as a prospective weight-loss drug for a couple of years, it can't get all the credit for the heroic run-up in Eli Lilly's stock. The pharmaceutical company's bamlanivimab was a much-needed COVID-19 treatment option in the early days of the pandemic. Its antiviral bebtelovimab was temporarily authorized as an addendum to bamlanivimab for treating COVID-19 back in 2022. Meanwhile, the type 2 diabetes therapy Trulicity remains Lilly's best-seller, accounting for one-fourth of the organization's sales -- and sales jumped 28% in 2021.

But it would be naive to say that hope for Mounjaro's future isn't the main force driving the stock's gain over the past three years. Goldman Sachs estimates the weight-loss drug market could be worth a whopping $100 billion when all is said and done. That's a lot of money.

Pitting Eli Lilly's Mounjaro and Novo Nordisk's Wegovy and Ozempic against one another has also added to the bullish frenzy.

And that's where things get complicated. This frenzy is causing investors to think more like speculators while also forcing them to ferret out all the misguided noise. That's not easy to do. It's why you never want to make long-term investment decisions in such an environment.

If it sounds too good to be true...

At the risk of waxing too philosophical on the ins and outs of pharmaceutical stocks, the optimism surrounding Mounjaro's potential as an obesity treatment has reached euphoric, and dangerous, levels. The crucial question of whether it works as described -- it's reportedly responsible for the loss of 15% or more of weight in obese patients -- is no longer even being asked. Now there seems to be an unofficial competition among analysts to see who can be most bullish on the stock, specifically because of the drug's suggested prospects.

So far the most bullish is UBS, with its lofty price target of $710 per share, anticipating "meaningful upward revisions" for sales of Mounjaro "as a result of its broadening use for obesity once approval as a weight-loss treatment is obtained."

Discussion about the drug's impact has also entered strange territory. Some analysts and investors are now publicly wondering if the appetite suppression Mounjaro can cause is posing a threat to fast-food chains like McDonald's. Ditto for soda giant PepsiCo. Even casinos are said to be potential victims of the advent of weight-loss drugs. The implication is that consumers only consume fattening foods and drinks because their appetite is uncontrollable, with no acknowledgment that flavor and convenience are also key factors behind purchases of these items.

It's not surprising Eli Lilly shares are soaring; the rhetoric makes Mounjaro and its peers seem like game-changing miracle drugs. There's a problem, though: These drugs aren't miracle drugs, even if Lilly's stock is currently priced as though they are.

It's an arguably unpopular opinion right now, but there is no proverbial "free lunch" when it comes to losing weight; there never has been. Diet and exercise remain crucial. Most of the market seems to be forgetting, or perhaps willfully ignoring, this reality.

In investors' defense, the drug seems safe enough for now. But long-term side effects of Mounjaro -- an injectable drug resembling two naturally produced hormones -- could become evident in the future.

It's also intended to be used by people with diabetes in conjunction with proper diet and exercise. Presumably, the same total lifestyle change will be necessary for obese people to reap the full benefit of the treatment. That may be a "big ask" for many who have already become significantly overweight.

Reading between the lines, Eli Lilly's and Novo Nordisk's entries in the obesity drug race may not be nearly as marketable as the current hype suggests, nor marketable for as long as the companies hope.

Buy the rumor, sell the news

Don't misunderstand: If Mounjaro is approved as a treatment for obesity, plenty of people will benefit. Plenty of people won't, however -- a reality check that could bring a quick end to the stock's rally. Indeed, Eli Lilly shares may not even rally all the way through whatever sales peak Mounjaro is able to reach.

If you've been in and around the pharma portion of the stock market long enough, you've probably heard the term "buy the rumor, sell the news." It's a nod to the fact that too many story stocks rally right up until a pivotal event (like a drug's approval), then start to slide immediately after.

Eli Lilly has something of an advantage in that it already has a portfolio of 12 revenue-bearing drugs to fall back on. Its pipeline is also full of promising prospects, and it is made even more promising by its recently announced plans to acquire oncology outfit Point Biopharma Global.

Still, Lilly stock is priced at more than 80 times this year's expected earnings of $6.72, while next year's big earnings estimate of $12.64 is seemingly based on assumptions that Mounjaro will be approved as an obesity treatment and then sell like crazy. One can't help but wonder if even the analyst community has succumbed to the hype.

So, to answer the initial question: No, it's not likely Eli Lilly stock will quadruple in value again over the course of the coming three years, with or without the approval of Mounjaro as a weight-loss treatment. There's no more real upside to price in from here; everything is already factored in. If anything, an approval could spark what's called a blow-off top, which is the last gasp of bullishness that starts a massive wave of profit-taking, pummeling a stock.

The good news is that a humbling pullback of Eli Lilly could finally force serious discussions about Mounjaro's plausible future. Once the stock's settled down and those conversations start happening, Lilly shares might actually be worth taking a swing on at their sharply lowered price.