Lilly's Explosive Growth in the Obesity Drug Market and Its Undervalued Stock Potential

The obesity drug market has emerged as one of the most dynamic sectors in healthcare, and Eli Lilly (LLY) has positioned itself at the forefront with its blockbuster drugs Mounjaro and Zepbound. These medications, based on the dual GLP-1/GIP mechanism of tirzepatide, have not only transformed treatment paradigms but also driven unprecedented revenue growth for the company. As of Q3 2025, the duo accounted for $10.1 billion in sales, a 109% increase for Mounjaro and 184% for Zepbound compared to the same period in 2024. This meteoric rise has sparked a critical debate among investors: Is Eli Lilly's stock, trading at a P/E ratio of 50x, still undervalued despite its dominance in a high-growth sector?

A Market Share Dominance Built on Innovation

Eli Lilly's success in the obesity and diabetes space is underpinned by its ability to capture market share through superior efficacy and aggressive commercialization. In Q3 2025, nearly 60% of prescriptions for injectable obesity and diabetes medications were for Lilly products, a figure that reflects sustained momentum in patient adoption and physician preference. Zepbound, approved for obesity management, and Mounjaro, for type 2 diabetes, have outperformed competitors like Novo Nordisk's Wegovy and Ozempic, partly due to Lilly's robust clinical trial data showing greater weight loss and glycemic control.

This dominance is not accidental. According to CNBC, Lilly's third-quarter 2025 revenue surged to $18.8 billion, with Mounjaro and Zepbound contributing over half of the total. The company's full-year 2025 revenue guidance of $63–63.5 billion, up from $45.04 billion in 2024, underscores its confidence in maintaining this trajectory. Analysts at SimplyWall St. note that Lilly's pipeline, including new indications for tirzepatide and late-stage candidates for cardiometabolic diseases, could extend its growth runway beyond 2025.

Valuation Metrics: A Tale of Two Perspectives

While Lilly's revenue growth is undeniable, its valuation has become a contentious topic. The stock's P/E ratio of 50x far exceeds the Pharmaceuticals industry average of 20x and the peer group average of 17x according to SimplyWall St.. Similarly, its PEG ratio of 1.32 suggests the stock is trading at a premium relative to its projected earnings growth according to Finviz. These metrics raise questions about whether the market is overbidding on future potential.

However, a deeper analysis reveals a more nuanced picture. A DCF valuation model estimates Lilly's intrinsic value at $1,274 per share, implying the stock is undervalued by approximately 19.4%. This discrepancy arises from diverging views on the sustainability of Lilly's growth. On one hand, the company's tirzepatide franchise is projected to generate $30 billion in peak sales, with expanding indications and global market access driving long-term demand. On the other hand, risks such as regulatory scrutiny, pricing pressures in Medicare and Medicaid, and competition from generic GLP-1 analogs could temper margins according to SimplyWall St..

Long-Term Growth vs. Short-Term Valuation Concerns

The key to assessing Lilly's stock lies in reconciling its explosive short-term growth with long-term fundamentals. For instance, the Zacks Consensus Estimate forecasts a 40.6% year-over-year increase in earnings per share for Q4 2025. Such growth is fueled by the rapid scaling of Zepbound, which generated $4.93 billion in 2024 revenue and $3.59 billion in Q3 2025 alone according to CNBC. Yet, the company's P/E ratio of 50x is above its historical Fair Ratio of 43x, suggesting the market may be pricing in perfection.

Investors must weigh these factors against broader industry trends. The obesity drug market is projected to grow at a compound annual rate of 15–20% through 2030, driven by rising obesity prevalence and a shift toward preventive care. Lilly's first-mover advantage in tirzepatide, combined with its $63.5 billion revenue guidance for 2025, positions it to capture a significant share of this expansion. However, the company's reliance on a single therapeutic class-GLP-1/GIP agonists-introduces concentration risk, particularly if newer modalities (e.g., oral formulations or combination therapies) disrupt the market.

Conclusion: A High-Stakes Bet on Innovation

Eli Lilly's obesity drug portfolio represents a rare confluence of medical innovation and commercial success. While its current valuation appears stretched relative to industry peers, the company's ability to outpace competitors and deliver consistent revenue growth justifies a premium for many investors. The critical question is whether the market will reward Lilly's long-term potential or punish it for overvaluation. For those with a multi-year horizon, the stock's undervaluation according to DCF models and its leadership in a high-growth sector may warrant a bullish stance. Yet, conservative investors should remain cautious about near-term risks, including regulatory headwinds and pricing pressures.

As the obesity drug market evolves, Eli Lilly's ability to innovate beyond tirzepatide-through new indications, delivery methods, or partnerships-will determine whether its explosive growth translates into enduring value.