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Eli Lilly stock (NYSE: LLY) has seen phenomenal gains of 400% from levels of $170 in early 2021 to around $840 now. This reflects a meaningful outperformance compared to some of its peers, with Pfizer stock (NYSE: PFE) seeing a 15% decline and Johnson & Johnson stock (NYSE: JNJ) seeing no gains over the same period. This significant rise for Eli Lilly can be attributed to: 1. a significant 273% rise in the company’s P/S ratio to 23x now, versus 6x in late 2020. 2. a 39% jump in the Eli Lilly’s revenue from $25 billion to $39 billion over this period, partly offset by 3. a 5% increase in the company’s total shares outstanding. Our Why Eli Lilly Stock Moved dashboard has more details.

Admirably, LLY stock has outperformed the broader market in each of the last three years. Returns for the stock were 64% in 2021, 32% in 2022, and 59% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Health Care sector including UNH, JNJ, and MRK, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high-interest rates, could LLY continue to see its bull run? From a valuation perspective, LLY stock looks like it has priced in most of the positives. However, any further positive developments around its pipeline and better than anticipated sales of its diabetes and obesity drugs may result in even higher levels. For now, the $860 average of analysts price estimate for Eli Lilly implies that it is appropriately priced.

Eli Lilly’s Revenues have risen 39% from $35 billion in 2020 to $34 billion in 2023. This can be attributed to market share gains for some of its drugs, including Mounjaro, Verzenio, and Zyprexa. Eli Lilly’s diabetes drug – Mounjaro – and its obesity drug – Zepbound – are expected to see explosive growth in coming years, with annual peak sales pegged at a whopping $50 billion. In fact, there is a shortage of Zepbound drug currently, and Eli Lilly will invest $9 billion in a manufacturing facility to keep up with its demand. Zepbound sales would be even higher if Eli Lilly were to meet the demand.

Investors have rewarded LLY stock, given its solid pipeline potential, primarily from its obesity drugs. The rise in Eli Lilly’s P/S ratio lately is primarily based on its future potential. Overall, Eli Lilly is on a path to deliver forceful sales growth in the coming years. While much of these positives are likely priced in, LLY stock may continue to trend higher on the back of market share gains for its drugs and expected regulatory approvals. Note that the obesity drugs market is expected to rise a substantial 16 times to over $100 billion by 2030, and it will largely be dominated by Eli Lilly and Novo Nordisk. We think any dip in LLY stock should be considered an opportunity for robust gains in the long run.

While LLY stock may see higher levels, it is helpful to see how Eli Lilly peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/7/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.