Shares of Eli Lilly (LLY 1.19%) can't seem to stop rallying. For investors thinking about whether to buy the stock, it can be both exciting and discouraging to see it rise. While it's encouraging to see the stock going in the right direction, it's also potentially discouraging to not see it dip in value, where there might be a potential buying opportunity.
Given the stock's impressive gains -- it's up around 80% in just 12 months -- is it too late to invest in Eli Lilly right now? Should investors continue waiting for what may be an inevitable sell-off, or is today still a good time to invest in the healthcare giant?
Why it might be too late to invest in Eli Lilly
The biggest reason investors may be turned off rom Eli Lilly's stock is its valuation. These are some of its key value multiples today, and they look downright awful for any value-oriented investors:
- Trailing price-to-earnings ratio: 116
- Forward price-to-earnings ratio: 53
- Price-to-earnings-to-growth (PEG) ratio: 1.6
- Price-to-sales ratio: 18
- Price-to-book ratio: 54
There's no denying that Eli Lilly is an expensive stock to own. The risk is that investors are paying for a huge amount of future growth. Excitement around the company's recently approved weight-loss drug Zepbound is through the roof. According to analyst projections, peak sales for the drug could hit $68 billion.
But when it comes to miracle weight-loss treatments, the healthcare industry has been here before. And the danger for investors is getting caught up in that hype and excitement. Zepbound has shown it can help people lose more than 26% of their body weight in clinical trials.
However, it's also a glucagon-like peptide 1 (GLP-1) agonist, and there are growing concerns about GLP-1 drugs and their side effects, including serious gastrointestinal issues, some of which require hospitalization. It's too early to tell if this could derail Zepbound or other GLP-1 drugs, but it's a risk that investors should consider when investing in Eli Lilly given that the stock is priced for perfection. Any bad press surrounding Zepbound could make Eli Lilly vulnerable to a correction.
Why it might not be too late to invest in the stock
Weight loss is undoubtedly a big part of the hype around Eli Lilly's stock today, but it's by no means the entire business. The company is diverse, and while it has been expanding and investing more into weight loss, it has also been working on other growth opportunities.
One of its most promising opportunities outside of weight loss is in Alzheimer's. The company has an early-stage Alzheimer's treatment, donanemab, which regulators are expected to make a decision on early this year. In clinical trials, donanemab performed similarly to Leqembi, which is a treatment from Biogen that regulators approved last year. Donanemab likely won't have as much potential as Zepbound, but it could bring in billions in sales for Eli Lilly.
The company has also been expanding via acquisitions. Last year it acquired Sigilon Therapeutics, which has a cell therapy in the works as a possible treatment for type 1 diabetes. Eli Lilly also acquired Dice Therapeutics in an effort to bolster its portfolio of drugs that treat autoimmune diseases.
Eli Lilly's operations are highly profitable, with the company earning a profit of just under $5 billion in the trailing 12 months on revenue of $32.1 billion, for a margin of 16%. The business is in good shape to continue to pursue more acquisitions to expand and grow its operations.
While there's no doubt weight loss is its most promising opportunity today, there are still more growth opportunities on the horizon. For investors who are looking far beyond just this year and next year for an investment they are willing to hold for a decade or longer, Eli Lilly can still make for a great stock to buy.
Should you buy Eli Lilly stock?
Eli Lilly is a stock I expect will eventually hit the $1 trillion mark given its growth opportunities.
Investors shouldn't be overly concerned about risks and side effects related to GLP-1 drugs, as it's far too early to tell if that will be a problem for Eli Lilly. No drug is perfect, and there will always be challenges along the way. And if there are, a company as diverse and financially strong as Eli Lilly will adapt, as it has over the past 140+ years it has been in existence.
Eli Lilly has been a great stock to own for years, and I'm confident it will remain that way for the foreseeable future. Long-term investors shouldn't wait for a dip, because they may end up waiting a long time, and missing out on gains along the way.
