With a daily gain of 2.37%, a 3-month gain of 31.64%, and an Earnings Per Share (EPS) of 7.09, Eli Lilly and Co (LLY, Financial) has attracted significant investor interest. The question that arises is whether the stock is significantly overvalued. This article aims to provide a comprehensive valuation analysis of Eli Lilly and Co (LLY), encouraging readers to delve deeper into the financial intricacies of the company.
Company Introduction
Eli Lilly and Co (LLY, Financial) is a 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. With a stock price of $573.23 and a market cap of $544.20 billion, the company's valuation significantly exceeds its GF Value of $310.27, suggesting overvaluation. This analysis will provide a deeper exploration of Eli Lilly and Co's value, integrating financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. It is based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, the stock of Eli Lilly and Co (LLY, Financial) appears to be significantly overvalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. Because Eli Lilly and Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Checking the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength have a higher risk of permanent loss. Eli Lilly and Co has a cash-to-debt ratio of 0.15, which is worse than 79.24% of 1050 companies in the Drug Manufacturers industry. The overall financial strength of Eli Lilly and Co is 6 out of 10, which indicates that the financial strength of Eli Lilly and Co is fair.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Eli Lilly and Co has been profitable 9 over the past 10 years. Its operating margin is 28.12%, which ranks better than 94.19% of 1033 companies in the Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Eli Lilly and Co at 9 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth . The average annual revenue growth of Eli Lilly and Co is 9.8%, which ranks better than 62.72% of 912 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 9.1%, which ranks worse than 51.76% of 881 companies in the Drug Manufacturers industry.
ROIC vs WACC
Comparing a company's Return on invested capital (ROIC) and the weighted average cost of capital (WACC) is another way to look at its profitability. For the past 12 months, Eli Lilly and Co's return on invested capital is 20.63, and its cost of capital is 7.3.
Conclusion
In summary, the stock of Eli Lilly and Co (LLY, Financial) appears to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 51.76% of 881 companies in the Drug Manufacturers industry. To learn more about Eli Lilly and Co stock, you can check out its 30-Year Financials here.
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