With a daily gain of 1.69% and a 3-month increase of 16.52%, Eli Lilly and Co (LLY, Financial) has been catching the eyes of investors. The company also boasts an impressive Earnings Per Share (EPS) of 7.09. However, is the stock significantly overvalued? This comprehensive analysis aims to answer this question, delving into the company's valuation, financial strength, profitability, and growth.
Company Introduction
Eli Lilly and Co is a renowned drug firm specializing in 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 robust portfolio and a current market cap of $522.70 billion, the company's stock is trading at $550.65 per share, significantly above its GF Value of $316.79. This discrepancy raises questions about the stock's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
For Eli Lilly and Co, the GF Value indicates that the stock is significantly overvalued. This conclusion is based on a comprehensive analysis of the stock's historical trading multiples, past business growth, and analyst estimates of future business performance. The stock's current price of $550.65 per share and the market cap of $522.70 billion suggest that the stock is trading significantly above its fair value.
Given the significant overvaluation, the long-term return of Eli Lilly and Co's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this risk, an investor must thoroughly review a company's financial strength before purchasing shares. Key indicators of financial strength include the company's cash-to-debt ratio and interest coverage. Eli Lilly and Co has a cash-to-debt ratio of 0.15, ranking worse than 78.92% of 1039 companies in the Drug Manufacturers industry. The overall financial strength of Eli Lilly and Co is 6 out of 10, indicating fair financial strength.
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. Over the past twelve months, the company had a revenue of $29.50 billion and Earnings Per Share (EPS) of $7.09. Its operating margin is 28.12%, ranking better than 94.18% of 1031 companies in the Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Eli Lilly and Co at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Eli Lilly and Co is 9.8%, ranking better than 62.55% of 916 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 9.1%, ranking worse than 51.25% of 880 companies in the Drug Manufacturers industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Eli Lilly and Co's return on invested capital is 20.63, and its cost of capital is 7.72.
Conclusion
Overall, Eli Lilly and Co (LLY, Financial) stock appears to be significantly overvalued. Despite its fair financial condition and strong profitability, its growth ranks worse than 51.25% of 880 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
