Key Points
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The company reported 39% revenue growth last quarter and also raised its guidance for the full year.
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About two-thirds of the company’s revenue comes from its top GLP-1 products.
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The stock trades at around 45 times its trailing earnings, which isn’t cheap.
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Eli Lilly (NYSE:LLY) stock recently hit a new all-time high of more than $1,400. The company has given investors more reasons to be bullish about it after releasing its latest quarterly numbers, which, once again, demonstrated impressive year-over-year growth.
The problem, however, is that a big chunk of that growth, or perhaps all of it, may have been priced into its valuation. That’s because with a high earnings multiple, expectations will be high, and the market may already be pricing in significant growth.
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At $1,400, Eli Lilly stock certainly isn’t cheap. But given its growth potential, is the healthcare stock still worth buying at around these levels?
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The company’s top line rose by 39% last quarter, and it raised its guidance
Eli Lilly’s revenue for the third quarter, which ended on Sept. 30, totaled $24.4 billion, rising by 39% year over year. That’s actually a bit of a slowdown for the business, as its growth rate over the past nine months has been 46%.
That’s more of a sign of how big the business has become, however, as inevitably, growth rates will come down the bigger the numbers are. And they’re big, with revenue from the company’s leading GLP-1 products, Mounjaro and Zepbound, totaling a combined $16.1 billion, accounting for roughly two-thirds of the company’s overall sales.
Management has raised its full-year guidance, now projecting sales between $91 and $92 billion (versus an earlier forecast of $85 to $87 billion). However, it also slightly lowered its earnings-per-share guidance by 50 cents on both the upper and lower ends, now projecting between $35 and $36 per share.
Has Eli Lilly’s stock gotten too expensive?
In just the past six months, Eli Lilly’s stock has skyrocketed around 46%. The excitement around its GLP-1 drugs has been a huge catalyst for the stock. But it also begs the question of whether the bloated valuation already prices in significant future growth.
With the stock trading at around 45 times its trailing earnings, I believe that a good chunk is indeed priced in. That can make the stock a bit riskier to buy than usual. And with so much depending on it remaining the dominant player in the GLP-1 market and so much of those products making up the lion’s share of its top line, there isn’t much, if any, room for error. There’s no margin of safety in the stock, which makes buying at this stage a bit concerning.
While Eli Lilly can still be a solid long-term investment, investors may want to temper their expectations for the stock’s near-term performance, as gains may be much more limited than they have been of late.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.
