Stock splits can sometimes be an effective way for a company to generate excitement around its stock. It's a sign that the company is doing well, and by lowering the price of the stock through a split, the shares can become more accessible to a wider pool of investors. It's why shares often rally following a stock split.
One stock that's starting to get up there in price is Eli Lilly (LLY +0.80%). Its shares are getting close to $1,000, and there could be a case for the company to deploy a stock split, perhaps as early as this year. Should investors expect one in the near future?
NYSE: LLY
Key Data Points
Eli Lilly last did a stock split in 1997
The healthcare company hasn't done a stock split in decades; its last one was a 2-for-1 back in 1997. While that's definitely a long time ago, there arguably hasn't been the need for Eli Lilly to do one. Until 2018, the stock wasn't even trading above $100.
But in the past few years, shares of Eli Lilly have been taking off. In five years, the stock has generated returns of nearly 800%. It has become the most valuable healthcare stock in the world and looks like it's on track to join the trillion-dollar club in the future with its market cap currently around $850 billion.
Is a stock split inevitable for Eli Lilly?
Eli Lilly's stock price is high enough that doing a stock split would make sense. But that doesn't mean one is coming.
Chipotle Mexican Grill recently did a stock split, and its share price was around $3,000 before it decided to do so. Stocks at much lower prices have done splits, as well. Last year, Eli Lilly's rival Novo Nordisk deployed a 2-for-1 stock split even though its share price was less than $200.
Ultimately, it comes down to management. Until an announcement about a stock split actually takes place, investors can only speculate about whether it will or won't happen.
There are no guarantees that Eli Lilly will split its shares this year or even five years from now. Stock splits aren't a necessity, after all. A stock can rise in value even if its share price is north of $1,000. Owning fractional shares makes it possible for investors to invest in a business regardless of how high its stock price is.
Eli Lilly is a great buy whether or not it splits its stock
There are many great reasons to invest in Eli Lilly -- including its promising growth prospects. The company has been generating impressive revenue and profit growth due to Zepbound and Mounjaro, its promising weight loss and diabetes treatments. They have the potential to generate tens of billions in revenue for the company in the long run, as Eli Lilly has established itself as an early leader in the scorching-hot market for anti-obesity treatments.
With so much potential for the business in the long run, Eli Lilly could be a fantastic investment, despite its high valuation. It currently trades at a price-to-earnings multiple of nearly 140.
While a stock split may generate some excitement, it's not a reason to invest in Eli Lilly. The stock is likely to rise in value regardless of whether it splits its shares or not.
