Eli Lilly (LLY -3.04%) stock is up a mammoth 770% in five years. It is trading at new all-time highs in 2024 thanks to the incredible success and popularity of its diabetes and weight loss products, Mounjaro and Zepbound. But with the stock standing at a market capitalization of $850 billion and a mammoth price-to-earnings multiple of 117, you might think it ludicrous to expect it could still be a good buy.
Normally, I'd agree and say that at such an enormous valuation, it's just too expensive to buy the stock. But given Eli Lilly's fantastic growth prospects, an exception may be warranted in this case. And based on what the company's CEO recently said, there's plenty of reason to remain bullish on its future.
The company hasn't needed to put much money behind its new drugs
You know a company has a good product when it doesn't need to spend aggressively to market it in order to grow sales. Conversely, if a company needs to spend heavily on sales and marketing in order to generate revenue growth, that's usually a red flag for investors. That could mean aggressive discounts and promotional activities are needed to get customers to place orders. But that isn't the case with Eli Lilly.
In a recent interview on CNBC, the company's CEO, David Ricks, was discussing the strong growth the business has been experiencing with its new drugs. And when talking about Zepbound, he referred to it as having "unbelievable demand" and said, "We're not even trying that hard to promote this drug."
Sales have been soaring for Zepbound and Mounjaro
For years, Eli Lilly's business has relied heavily on top-selling diabetes drug Trulicity for growth. But with the approval of Mounjaro for diabetes and Zepbound for weight loss, it's a much different situation today for the company. Trulicity is no longer Eli Lilly's top-selling product. In fact, it's barely hanging on to the No. 3 spot.
During the most recent period, which ended on June 30, Trulicity's sales totaled $1.2 billion and were less than half of the $3.1 billion that Mounjaro generated. It's only slightly ahead of Zepbound but as the rollout of the recently approved weight loss drug continues, its sales will likely also soar far higher than Trulicity's in the near future. In addition to Mounjaro and Zepbound, breast cancer drug Verzenio also brought in more sales than Trulicity this past quarter ($1.3 billion).
Overall revenue growth for Eli Lilly in the second quarter came in at 36%, with sales topping $11.3 billion. But with tirzepatide, the active ingredient in Zepbound and Mounjaro, potentially bringing in $50 billion or more revenue at its peak (according to analysts), there could still be plenty of more room for the company's top line to grow much higher in the years ahead.
It may not be too late to invest in Eli Lilly stock
Eli Lilly's stock is undoubtedly expensive. But it trades at a high premium because it has the best weight loss drug in the market right now. And with the many obesity-related illnesses tirzepatide can help, the sky could be the limit for Eli Lilly's stock.
While its trailing earnings multiple appears high, the stock's price-to-earnings-growth ratio of 1.3 indicates that the stock may not be as overvalued when factoring its long-run growth opportunities. And as tirzepatide obtains approval for other indications, analysts are likely to upgrade their forecasts for the drug, which, in turn, may lead to more upgrades for the healthcare stock as well.
Despite its seemingly expensive valuation, if you're willing to buy and hold shares of Eli Lilly, this can still make for an excellent growth stock to hang on to in your portfolio for the long haul.
