With a daily gain of 17.9%, a 3-month gain of 22.92%, and an Earnings Per Share (EPS) of 6.19, Eli Lilly and Co (LLY, Financial) has shown impressive performance. However, the question remains: is the stock significantly overvalued? This article provides an in-depth analysis to answer this question, exploring the company's valuation, financial strength, profitability, and growth.
Company Introduction
Eli Lilly and Co (LLY, Financial) is a leading drug firm with a focus on neuroscience, cardiometabolic, cancer, and immunology. The company's key products include Verzenio for cancer; Mounjaro, Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology. Despite its impressive market cap of $508.20 billion and sales of $27.70 billion, the company's stock price of $535.36 significantly exceeds its GF Value of $277.29, suggesting that the stock may be overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that provides an estimation of a stock's fair value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it is likely overvalued and may offer poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock is potentially undervalued and may offer higher future returns.
Based on this analysis, Eli Lilly and Co's stock is significantly overvalued. Given this overvaluation, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Evaluating Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Eli Lilly and Co's cash-to-debt ratio of 0.19 is worse than 77.01% of companies in the Drug Manufacturers industry, suggesting fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, often poses less risk. Eli Lilly and Co has been profitable for 9 out of the past 10 years, demonstrating strong profitability. However, the company's 3-year average annual revenue growth rate of 9.8% ranks worse than 51.81% of companies in the Drug Manufacturers industry, suggesting room for improvement in growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. Eli Lilly and Co's ROIC of 18.61 is higher than its WACC of 7.04, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Eli Lilly and Co's stock is significantly overvalued, despite its fair financial condition and strong profitability. To learn more about Eli Lilly and Co stock, you can check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
