Think Eli Lilly's Stock Is Expensive? Here's Why Selling It Now Could Be a Huge Mistake

Eli Lilly's (LLY) stock price has been on a tear, up 472.57% since the start of 2020, and it's currently trading at $756.99. However, with a price-to-earnings (P/E) ratio of 72.10, some investors might be tempted to sell, thinking the stock is expensive. But before you make that decision, consider the following reasons why selling Eli Lilly now could be a huge mistake.



1. Strong Earnings Growth: Eli Lilly's earnings per share (EPS) have grown significantly over the past few years. In 2024, EPS was $11.71, up from $6.12 in 2021, representing a growth rate of 91%. This strong earnings growth suggests that the company's fundamentals are robust, and its high P/E ratio may be justified.
2. High Return on Equity (ROE): Eli Lilly's ROE is 84.10%, indicating that the company is efficiently using its shareholders' investments to generate profits. A high ROE suggests that the company's stock price may be undervalued, as it implies that the company is generating significant returns for its investors.
3. Consistent Dividend Growth: Eli Lilly has a history of consistent dividend growth, with a 10-year streak of increasing dividends. The company's dividend yield is 0.71%, and its payout ratio is 51.24%, indicating that the company is distributing a reasonable portion of its earnings to shareholders while still maintaining a strong balance sheet.
4. Strong Analyst Ratings: The average analyst rating for Eli Lilly's stock is "Strong Buy," with a price target of $976.43, which is 15.65% higher than the current price. This consensus rating suggests that analysts believe this stock is likely to perform very well in the near future and significantly outperform the market.
5. Growth in Revenue and Earnings: Eli Lilly's revenue and earnings have both grown significantly over the past few years. In 2024, the company's revenue was $45.04 billion, up from $28.32 billion in 2021, representing a growth rate of 60%. Similarly, the company's net income was $10.59 billion in 2024, up from $2.74 billion in 2016, representing a growth rate of 91%.

These indicators suggest that Eli Lilly's stock may be undervalued, despite its high P/E ratio, as the company's strong financial performance, growth, and analyst ratings suggest that its stock price may not fully reflect its underlying fundamentals. Additionally, Eli Lilly's strong pipeline of innovative drugs, such as Tirzepatide and Donanemab, positions the company well for long-term growth. The company's commitment to strategic partnerships and collaborations further enhances its competitive position and drives shareholder value.

In conclusion, while Eli Lilly's stock may appear expensive based on its high P/E ratio, the company's strong financial performance, growth, and analyst ratings suggest that its stock price may not fully reflect its underlying fundamentals. With a robust pipeline of innovative drugs and a commitment to strategic partnerships, Eli Lilly is well-positioned for long-term growth. Therefore, selling Eli Lilly stock now could be a huge mistake, as the company's fundamentals and growth prospects suggest that there is still significant upside potential.