The stock of Eli Lilly and Co (LLY, Financial) has been a topic of interest for many investors, given its recent performance. The stock has seen a daily loss of -3.78%, but a 3-month gain of 22.79%. Coupled with an Earnings Per Share (EPS) of 7.09, it raises the question: Is the stock significantly overvalued? This article aims to provide a comprehensive analysis of Eli Lilly and Co's valuation to answer this question. Read on for an in-depth exploration.
Company Introduction
Eli Lilly and Co is a renowned drug firm with a primary focus on neuroscience, cardiometabolic, cancer, and immunology. Some of its key products include Verzenio for cancer; Mounjaro, Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology. With a current stock price of $548.12 and a market cap of $520.30 billion, it is essential to compare this with the GF Value, an estimation of fair value, to gain a better understanding of the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples that the stock has traded at, the GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at.
If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Currently, Eli Lilly and Co stock appears to be significantly overvalued, indicating that the long-term return of its stock is likely to be much lower than its future business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase its shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Eli Lilly and Co has a cash-to-debt ratio of 0.15, ranking lower than 78.68% of 1060 companies in the Drug Manufacturers industry. The overall financial strength of Eli Lilly and Co is 6 out of 10, indicating fair financial strength.
Evaluating Profitability and Growth
Profitable companies, especially those demonstrating consistent profitability over the long term, pose less risk to investors. Eli Lilly and Co has been profitable 9 over the past 10 years, with a revenue of $29.50 billion and Earnings Per Share (EPS) of $7.09 over the past twelve months. Its operating margin is 28.12%, ranking better than 94.4% of 1053 companies in the Drug Manufacturers industry. This indicates strong profitability.
Growth is a crucial factor in the valuation of a company. Eli Lilly and Co's 3-year average revenue growth rate is better than 62.53% of 926 companies in the Drug Manufacturers industry. However, its 3-year average EBITDA growth rate is 9.1%, ranking lower than 51.63% of 889 companies in the Drug Manufacturers industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Eli Lilly and Co's ROIC was 20.63 while its WACC came in at 7.35.
Conclusion
Overall, Eli Lilly and Co (LLY, Financial) stock appears to be significantly overvalued. The company's financial condition is fair and its profitability is strong. However, its growth ranks lower than 51.63% of 889 companies in the Drug Manufacturers industry. For more insights on Eli Lilly and Co stock, you can check out its 30-Year Financials here.
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