Is Eli Lilly Stock a Buy?

Powered by its popular GLP-1 weight loss drugs, Eli Lilly's stock (NYSE: LLY) has had a strong run this year, up more than 55%. However, the company's success goes back much further, with the stock up more than 1,300% over the past decade.

Given its strong performance, investors may be wondering if the stock is still a buy. Let's take a closer look to help decide.

The GLP-1 drugs

While Eli Lilly has a portfolio of drugs that help address several health issues, it's the company's GLP-1 drugs that are its top sellers. Its first GLP-1 drug called Byetta, developed in conjunction with (now Bristol Myers Squibb subsidiary) Amylin Pharmaceuticals, was approved back in 2005 to help better control blood sugar levels in patients with type 2 diabetes. The two partners would later split, with Amylin paying Eli Lilly for its exenatide portfolio, including Byetta, in 2011.

However, Eli Lilly continued to develop GLP-1 drugs, getting Trulicity, which is used to treat type 2 diabetes, approved in 2014. By 2018, Trulicity would become Eli Lilly's top-selling drug, with over $3 billion in sales. While its sales are in decline as Eli Lilly's newer GLP-1 drugs begin to take market share, the drug was still Eli Lilly's second-best-selling drug in the first half of 2024, with $2.7 billion in sales. However, that was a decline of 29% versus the first half of 2023.

The current rising stars of Eli Lilly's drug lineup are Mounjaro and Zepbound, two GLP-1 drugs that use tirzepatide as their active ingredient. Mounjaro was first approved by the FDA in May 2022 to help improve blood glucose levels in adults with type 2 diabetes. However, the drug was quickly being prescribed off-label for weight loss. Through the first half of 2024, it was Eli Lilly's top-selling drug, bringing in a massive $4.9 billion in revenue, up from $1.5 billion over the same period a year ago.

Eli Lilly, meanwhile, got a second tirzepatide drug approved late last year. This time, it was Zepbound, which was specifically for weight loss in obese adults or overweight adults who have at least one weight-related condition such as type 2 diabetes, high blood pressure, or high cholesterol. However, it too was quickly being prescribed off-label for general weight-loss purposes. The drug soared out of the gate to become Eli Lily's fourth-best-selling drug in the first half of this year.

Image source: Getty Images

Right now, Eli Lilly is seeing unprecedented demand for its tirzepatide drugs, which it is still working to satisfy. Over the past few years, it has poured money into new facilities, and it recently announced a new $4.5 billion investment to create an advanced manufacturing and drug development center at its Indiana facility, which comes on the heels of a $5.3 billion expansion announced in May.

At the same time, the company is also looking to get the drug approved for other instances, such as obstructive sleep apnea, that can be covered by Medicare. This opens up another growth driver for these drugs down the line. However, obesity will remain a focus, with it having 11 new molecules currently in clinical trials across multiple indications.

Meanwhile, Eli Lilly is fighting both counterfeit and compound drugs that have come to market, given the popularity of its GLP-1 drugs, as well as those of rival Novo Nordisk. The company has sent cease-and-desist letters to hundreds of companies that have been making and selling these compounded drugs, which had been legal when the drugs were on the FDA's shortage list, from which tirzepatide was recently removed. There will likely be a major battle, however, to reduce the use of cheaper compounding drugs, and Novo Nordisk's semaglutide active ingredient is still on the list. At this point, though, any inroads into curbing this should be beneficial to the company.

Is Eli Lilly a buy?

Eli Lilly has a long history of developing drugs to treat a variety of conditions. For example, its third-best-selling drug Verzenio is used to help treat breast cancer, while its sixth-best-selling drug Taltz is used to treat autoimmune diseases. Meanwhile, it currently has a plethora of drugs in clinical trials for treating such conditions as Alzheimer's disease, multiple sclerosis, and Parkinson's disease.

That said, weight-loss drugs are certainly the company's biggest growth engine right now. The demand for its GLP-1 drugs is currently why the stock trades at a healthy forward price-to-earnings (P/E) of 38.6 times next year's analyst estimates. That's quite high compared to some larger traditional pharmaceutical rivals such as Pfizer and Merck, which both trade at under 11 times.

However, Eli Lily is a fast-growing company, with a price/earnings-to-growth ratio (PEG ratio) of only 0.5. PEGs under 1 are usually considered undervalued, so on that basis, the stock is inexpensive.

LLY PE Ratio (Forward 1y) data by YCharts

Given the big opportunity that Eli Lilly still has in front of it with its GLP-1 drugs, the stock is a buy at its current valuation.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Merck, and Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.