Should You Invest $1,000 in Eli Lilly today?

Eli Lilly (NYSE: LLY) sells a broad range of medicines, from cancer and immunology drugs to treatments for migraine. The pharma giant's presence across several treatment areas has helped it grow earnings over time. But, in recent years, one particular product portfolio has stood out and driven double-digit revenue growth: drugs to help people lose weight.

Right now, Lilly sells tirzepatide, commercialized as Mounjaro for type 2 diabetes and as Zepbound for weight loss, though doctors have prescribed either one for patients hoping to shed pounds. Mounjaro and Zepbound each have become blockbusters, bringing in billion-dollar revenue annually. Lilly dominates the weight loss market along with rival Novo Nordisk, but a recent move by Lilly could help it push farther ahead in the coming years.

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Considering this, should you invest $1,000 in Lilly stock today? Let's find out.

Image source: Getty Images.

Lilly's weight loss drugs

So, first, let's talk about Lilly's path so far in this market and what might lie ahead. Lilly's weight loss drugs are part of a class known as dual GIP and GLP-1 receptor agonists. They act on hormonal pathways involved in the digestion process and help control blood sugar levels and appetite. Novo Nordisk's rival drug, semaglutide -- sold as Ozempic for type 2 diabetes and Wegovy for weight loss -- targets only GLP-1 but works in a similar way.

Novo Nordisk was first to market with its product, winning approval for Ozempic in 2017, and this offered it time to build a market-leading position. But demand has been so high for such weight loss drugs that Lilly quickly gained share soon after entering the market with Mounjaro in 2022 and then with Zepbound in 2023. In fact, demand has been so strong that these drugs held spots on the U.S. Food and Drug Administration's drug shortage list for quite some time, only exiting the list in recent months.

A better supply situation for weight loss drugs isn't due to a drop in demand but instead to increases in manufacturing capacity by both companies. So solid demand for these products still exists -- and is likely to grow.

Goldman cuts its market forecast

It's important to keep in mind, though, that both Lilly and rivals may face some headwinds in the years to come, and that's why Goldman Sachs Research recently reduced its forecast for global sales of anti-obesity medicines to $95 billion by 2030, from an earlier forecast of $130 billion. This is due to several potential challenges, including lower per-unit prices and weaker reimbursement from certain insurers.

But even considering the challenges, "we see a significant growth opportunity for both existing players as well as new entrants into this market," said Goldman analyst Asad Haider. After all, from today's $28 billion market, the forecast figure represents a 239% increase.

A look at Lilly's weight loss drug sales shows us this company has the momentum to benefit from this high-growth market. Last year, Mounjaro and Zepbound generated more than $11 billion and $4.9 billion in sales, respectively. And these two products are driving double-digit total sales growth at Lilly -- with a 32% gain in the full year and a 45% gain in the most recent quarter.

Now, what may push Lilly past Novo Nordisk -- and keep it far ahead of newer rivals down the road -- is the company's progress on an oral weight loss candidate. Current products are in injectable form, which may be less convenient and even uncomfortable for certain users. Lilly recently reported positive results from a phase 3 trial of its oral candidate, orforglipron, and plans to request approval for use in weight management by the end of the year. Though Novo Nordisk sells an oral form of semaglutide, it involves strict food and water guidelines. The potential Lilly product doesn't, offering it a significant advantage.

A look at valuation

Now, let's return to our question: Should you invest $1,000 in Lilly right now? The shares are trading for 34 times forward earnings estimates -- that's around the same level as top tech companies such as Amazon and Nvidia, also known for delivering double-digit revenue growth.

LLY PE Ratio (Forward) data by YCharts

In fact, since the launch of tirzepatide, Lilly has traded at valuations resembling those of growth stocks. So it may seem pricey to you for a pharmaceutical player.

But it's worth keeping in mind that Lilly stands out from the pharma crowd due to its presence in the high-growth market of weight loss drugs, yet at the same time it offers you the stability and dividend growth of a pharma stock. You generally can count on big pharma companies for steady revenue since patients always need their medicines -- regardless of the economic situation. And you can count on Lilly for passive income too, with a forward dividend of $6, representing a dividend yield of 0.8%.

Meanwhile, valuation has come down from its peak to levels that look very acceptable for a growth stock. All of this means that, by investing in Lilly, you're getting growth worthy of a tech company along with the safety generally associated with a pharma stock. That makes the stock well worth the price, and a great place to park $1,000 right now.

Should you invest $1,000 in Eli Lilly right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, and Nvidia. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.