Eli Lilly and Co (LLY, Financial) has recently experienced a daily loss of 2.47%, although it has gained 10.52% over the past three months. With an Earnings Per Share (EPS) of 6.68, the question arises: Is the stock significantly overvalued? This analysis aims to explore Eli Lilly and Co's valuation, urging readers to consider the insights that follow.
Company Overview
Eli Lilly and Co, a prominent drug firm, specializes in areas such as neuroscience, cardiometabolic diseases, cancer, and immunology. Some of its key products include Verzenio for cancer and Mounjaro for diabetes. Despite its robust product line, there's a stark contrast between its current stock price of $737.24 and its GF Value of $422.71, suggesting that the stock might be significantly overvalued. This valuation discrepancy sets the stage for a detailed financial analysis.
Understanding GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Currently, the GF Value suggests that Eli Lilly and Co is significantly overvalued. This assessment is crucial as it indicates that the long-term return on this investment might be lower than the company's future business growth.
Financial Strength and Risks
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Eli Lilly and Co's cash-to-debt ratio of 0.1 is lower than 84.83% of its peers in the Drug Manufacturers industry, which might raise some concerns about its financial health. However, its financial strength is rated 6 out of 10 by GuruFocus, indicating a fair condition.
Profitability and Growth
Eli Lilly and Co has consistently demonstrated high profitability, with an impressive operating margin of 33.51%, ranking better than 96.37% of its industry peers. However, its 3-year average annual revenue growth rate of 12% is mixed compared to industry standards. This indicates a strong but potentially slowing growth trajectory.
Evaluating Investment Efficiency: ROIC vs WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is critical in assessing investment efficiency. Eli Lilly and Co's ROIC of 22.81 significantly exceeds its WACC of 7.66, suggesting effective capital management.
Conclusion
While Eli Lilly and Co (LLY, Financial) is deemed significantly overvalued based on its GF Value, the company maintains a strong financial condition and profitability. Investors should weigh these factors carefully against the company's valuation to make informed investment decisions. For further details on Eli Lilly and Co's financials, visit 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
