Eli Lilly Stock Hits a New All-Time High: Has It Gotten Too Expensive to Buy?

Eli Lilly (NYSE: LLY) stock has been rallying in recent months, taking off from around $850 in late April to more than $1,200 as of Monday's close, for an increase of more than 40% over that stretch. It's a massive rally for the stock in such a short time frame, which has recently pushed it up to not only a new 52-week high but also a new all-time high.

The healthcare giant's market cap has climbed back above the $1 trillion mark in the process. But the big question for investors is whether it's gotten too hot to buy; can Eli Lilly stock still be a good buy at around $1,200?

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What's behind the stock's massive rally?

Eli Lilly's stock took off after the healthcare company posted its quarterly results on April 30. The numbers showed tremendous growth for the company in the first three months of the year, with Eli Lilly's growth rate topping an impressive 56% -- higher than anything the company has achieved in the past decade.

LLY Revenue (Quarterly YoY Growth) data by YCharts

While Eli Lilly has been a good growth stock for years, its GLP-1 drugs, Mounjaro and Zepbound, have taken the company to yet another level. What's encouraging for investors is that the rollout of these drugs is still in the early stages, and the company only recently obtained approval for its GLP-1 pill, Foundayo, back on April 1. Eli Lilly had a terrific business before, and now it's become even better.

Is the stock worth its hefty premium?

If a stock is trading at a new all-time high, that doesn't always mean that it's too expensive. As in Eli Lilly's case, it may be rising for good reason -- its business is taking off and growing at a much faster pace than before. This is where using earnings multiples can be useful, as they help gauge a stock's value relative to overall profitability. Eli Lilly is trading at 43 times its trailing earnings, but that drops to 33 when based on analysts' earnings expectations for the year ahead. It's a bit expensive, but perhaps not obscene given how well the business has been doing.

Overall, Eli Lilly is a quality company to invest in, with a terrific growth rate, and if it can continue delivering such strong numbers, it's certainly possible the stock could rise even higher. However, investors should tread carefully, as buying a stock at such a high valuation can result in limited upside. While Eli Lilly remains a quality long-term investment, it may primarily appeal to investors willing to buy and hold for the long haul.

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.