Down Nearly 20%: Should You Buy the Dip on Eli Lilly?

For a while, it seemed as if Eli Lilly (NYSE: LLY) could do no wrong. Its shares skyrocketed. The company's market cap grew so much that it was within striking distance of the $1 trillion mark. Along the way, Lilly became the largest healthcare company in the world based on market cap.

However, the situation isn't so rosy for Eli Lilly now. The big pharma stock has fallen nearly 20% below its peak set last year. Some dark clouds hover on the horizon. Should you buy Lilly on the dip?

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Behind Lilly's decline

There isn't just one factor behind the decline in Lilly's share price. However, the biggest issue for the drugmaker is a common one for high-flying stocks: Lilly didn't meet Wall Street estimates. Unfortunately, the company has failed to deliver the results analysts expected in two out of the last three quarters.

The worst miss was in the third quarter of 2024, when Lilly's earnings came in roughly 19.5% below the consensus estimate. More recently, the big pharma company narrowly missed earnings expectations by around 3.4%. Regardless of the size of the miss, though, investors expect a stock with a forward price-to-earnings ratio of 36.6 to be practically perfect.

Concerns about rising competition in the obesity drug market have also weighed on Lilly's share price. Novo Nordisk is on track to file for regulatory approval of CagriSema in early 2026. CVS Health recently chose Novo Nordisk's weight-loss drug Wegovy as a preferred drug on its formulary over Zepbound. Roche teamed up with Zealand Pharma, which has a promising weight-loss drug in clinical development. Viking Therapeutics is advancing its experimental obesity drug VK2735 into late-stage clinical testing.

To add more uncertainty to the mix, the Trump administration has threatened major tariffs on pharmaceutical imports. Lilly CEO David Ricks acknowledged in the company's Q1 earnings call that tariffs "would have a negative effect on Lilly and for our industry."

Reuters also recently reported that the White House is considering implementing international reference pricing, which would peg the price Medicare pays for prescription drugs to the prices that other major countries pay. Ricks said in the Q1 call that looking at U.S. versus European list prices for drugs in isolation is "a nonsensical idea."

Image source: Getty Images.

Key reasons to consider buying Lilly stock

Why consider buying Lilly stock with these issues in the forefront? The most important reason to invest in the drugmaker is still its growth prospects.

Sales are booming for Lilly's tirzepatide products, Mounjaro and Zepbound. The company's market share for incretin analogs now tops 50%. Notably, Lilly's market share is increasing while Novo Nordisk's share is decreasing.

Lilly's pipeline features other promising obesity drugs as well. The company plans to file for approvals of orforglipron (a weight-loss pill taken daily) later this year, pending successful completion of current phase 3 studies. Lilly hopes to follow up with regulatory submissions of orforglipron as a treatment for type 2 diabetes in the first half of 2026.

Breast cancer drug Verzenio continues to enjoy solid momentum, with sales jumping 10% year over year in Q1. The therapy is especially growing in international markets.

Lilly has 25 programs in late-stage testing, notably including Jaypirca as a first-line monotherapy for chronic lymphocytic leukemia and olomorasib in treating non-small cell lung cancer. The company also awaits regulatory approvals for tirzepatide in heart failure with preserved ejection fraction and imlunestrant in breast cancer.

Weighing the pros and cons

Should investors buy Lilly stock on the dip? I think it's important to weigh all the pros and cons first. However, the balance tips in favor of investing in this drugmaker, in my opinion.

I fully expect Lilly to remain a dominant player in the obesity and type 2 diabetes markets. The company should continue to make inroads in oncology and other indications. The Trump administration's potential pharmaceutical tariffs and Medicare pricing changes are wild cards that could change the dynamics. Still, though, I think Lilly's sell-off presents a buying opportunity.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health, Novo Nordisk, Roche Holding AG, and Viking Therapeutics. The Motley Fool has a disclosure policy.