Shares of Eli Lilly and Company (LLY 1.19%) were slumping on Thursday, falling 5.4% lower as of 10:48 a.m. ET. Was there bad news for the big drugmaker? Nope. On the contrary, Lilly actually had good news.
The company announced Thursday morning that the U.S. Food and Drug Administration (FDA) approved tirzepatide for chronic weight loss management. Lilly already markets the drug under the brand name Mounjaro as a treatment for type 2 diabetes. It plans to use the brand name Zepbound for the weight loss indication.
Why is Lilly stock sliding on positive news?
Many investors could be scratching their heads about Lilly's share price moving lower instead of higher on Zepbound's FDA approval. What's going on? I suspect we're simply seeing the old adage "buy the rumor, sell the news" at work.
It's important to put today's decline in context. Lilly's shares have skyrocketed more than 60% so far in 2023. Some investors could be taking some profits off the table now that the highly anticipated FDA approval of Zepbound is in hand. However, the post-approval dip doesn't amount to much in light of Lilly's overall performance.
Is Lilly stock a buy now?
Wall Street analysts predict that Mounjaro/Zepbound could generate peak annual sales of over $50 billion. Lilly is on track to make in the ballpark of $34 billion this year.
Some might point out that significant growth expectations are already baked into the share price. Lilly's forward price-to-earnings multiple is over 50 times. However, I think that the overall growth prospects for Lilly's current products and pipeline justify this valuation. I view Lilly as one of the better healthcare stocks to buy right now.
