Trading at $541.95, Eli Lilly and Co (LLY, Financial) has experienced a daily gain of 2.81% and a 3-month gain of 24.82%. With an Earnings Per Share (EPS) of 7.09, the question arises: Is the stock significantly overvalued? In this comprehensive analysis, we delve into the valuation of Eli Lilly and Co, offering insights into its intrinsic value.
Company Introduction
Eli Lilly and Co, a renowned drug firm, focuses on neuroscience, cardiometabolic, cancer, and immunology. With key products like Verzenio for cancer and Taltz and Olumiant for immunology, the company has made significant strides in the pharmaceutical industry. However, its current stock price greatly surpasses its GF Value of $300.18, hinting at a potential overvaluation.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it may be overvalued, leading to poor future returns. Conversely, if it's significantly below the GF Value Line, it may be undervalued, promising high future returns.
The stock of Eli Lilly and Co (LLY, Financial), with a market cap of $514.50 billion, shows signs of significant overvaluation. With its stock price significantly above the GF Value Line, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Before investing, it's crucial to assess a company's financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Eli Lilly and Co's cash-to-debt ratio of 0.15 is worse than 80.15% of companies in the Drug Manufacturers industry, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable offer less risk for investors. Eli Lilly and Co has been profitable for 9 out of the past 10 years, with an operating margin of 28.12%, ranking better than 94.03% of companies in the Drug Manufacturers industry. This indicates strong profitability.
Long-term stock performance is closely correlated with growth. The average annual revenue growth of Eli Lilly and Co is 9.8%, which ranks better than 62.69% of companies in the Drug Manufacturers industry. However, its 3-year average EBITDA growth is 9.1%, ranking worse than 51.69% of companies in the Drug Manufacturers industry, indicating less impressive growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Eli Lilly and Co's ROIC was 20.63, while its WACC came in at 7.16.
Conclusion
Overall, Eli Lilly and Co (LLY, Financial) stock appears significantly overvalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 51.69% of 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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