The six most valuable companies in the world by market cap all have one thing in common: each is valued at over $1 trillion. Five of the six are in the technology business, with the exception being Saudi Arabian Oil.
With a market cap of roughly $592 billion, Eli Lilly (LLY 2.26%) is the world's largest healthcare company and the 10th most valuable business in the world.
Indeed, Lilly stock has been on a tear lately. In just the last year, the stock has returned nearly 80% -- about triple the return of the S&P 500.
A good reason why Lilly stock has experienced such pronounced growth in a short timeframe is due to the success of its diabetes and weight-loss treatments, Mounjaro, Zepbound, and Jardiance. Although investors may be tempted to take some profits off the table, there are many reasons to consider holding on to Lilly stock -- and perhaps buying even more.
Let's take a look at the whole picture and assess whether Lilly has a shot at joining the $1 trillion club within the next few years.
NYSE: LLY
Key Data Points
Look at the long-term returns
Eli Lilly has been a publicly traded company for several decades. The chart below illustrates the total return of Lilly stock since its inception on the public exchanges.
LLY Total Return Level data by YCharts.
With a long-term return of nearly 45,000%, an investment of just $1,000 would be worth nearly $450,000 today with dividends reinvested.
There are two key items in play here. First, the chart above can serve as a visual reminder that holding investments over a long-term time horizon can produce lucrative returns for patient and disciplined investors. Additionally, it can help remind investors about the power of compounding and how seeking out dividend stocks can further supplement your gains.
Image source: Getty Images.
What could fuel Lilly's future growth?
Most investors considering a position in Eli Lilly are probably focusing on the company's position within the weight-loss market. Diabetes and obesity medications such as Ozempic and Wegovy are rising in popularity. Those particular treatments are developed by Danish pharmaceutical company Novo Nordisk, which owns roughly 60% of the glucagon-like peptide 1 (GLP-1) semaglutide market share.
While its market share is currently much smaller than rival Novo Nordisk's, Lilly's counters to Ozempic and Wegovy are gaining momentum quickly. Treatments including Mounjaro and Jardiance are multi-billion-dollar revenue streams for Lilly. Moreover, with the recent approval of Zepbound from the U.S. Food and Drug Administration (FDA), I am optimistic that Lilly's potential within the weight-loss market is only just beginning. And a review of Eli Lilly's history emphasizes one theme in particular: The company is relentlessly innovative.
Beyond the weight-loss market, Lilly has several other catalysts. Its cancer drug, Verzenio, is the company's third largest revenue stream -- growing over 60% year over year. This growth rate could very well continue given the drug's revised testing requirements and expansion for patients.
Another large market in which Lilly operates is plaque psoriasis and psoriatic arthritis. The company's flagship treatment, Taltz, has generated nearly $2 billion in revenue through the first nine months of 2023 and is growing more than 10% annually.
Lastly, Lilly is looking to capture a share of the Alzheimer's market. Its drug, donanemab, is not yet FDA-approved, but clinical trials are showing positive indications. Should donanemab receive approval from the FDA this year, Eli Lilly is looking at a potentially smashing success in yet another end market.
The $1 trillion club is within reach
Per Eli Lilly's third-quarter earnings report, the company is expecting to generate $33.6 billion in total revenue for 2023 at the midpoint of its guidance. According to analyst estimates, Lilly is expected to grow its top line by about 16% in 2024.
The first thing investors should understand is that Eli Lilly's future growth rates hinge on many variables. If the company experiences a setback with one of its pipeline medications or if it struggles to gain traction over Novo Nordisk in the obesity and diabetes markets, Eli Lilly could start to see a deceleration in its growth.
Given the current popularity around Mounjaro and its sibling treatments, coupled with Lilly's other opportunities, I'll assume that the company achieves analyst expectations of $39 billion in revenue this year and use that as a starting point. However, to be conservative, if I forecast that the company grows sales at an average annual rate of 8% through 2030, Lilly would generate revenue of around $62 billion -- almost double where it is today. Then, by applying the company's long-term price-to-sales (P/S) ratio of 17.6 to this revenue projection, Eli Lilly would reach a market cap slightly above $1 trillion by 2030.
As a shareholder in Lilly stock, I am extremely bullish about the company's long-term prospects. While growth could eventually plateau, I am optimistic that Eli Lilly is in a position to continue generating robust top- and bottom-line returns. Although the above example is merely a fun exercise with numbers, I see Lilly's potential to reach a $1 trillion valuation by 2030 as real.
Along with its strong performance last year, Lilly has also been a great stock to own for the long term. With so many exciting opportunities ahead, I think now is a great time to begin building a position in the stock.
