Eli Lilly (LLY 1.57%) has become a beast in healthcare. The excitement surrounding its GLP-1 drugs, Mounjaro and Zepbound, has helped boost its market capitalization to around $650 billion. Over the last five years, shares have soared by more than 400%.
Recently, however, the stock has been struggling; in the past three months, Lilly’s valuation has declined by 21%. It fell last week after the company released updated guidance, with revenue for its GLP-1 drugs projected to come in below expectations for the most recent quarter.
Is this a sign the stock is in trouble and likely headed for more of a decline this year? Or could now be a good time to buy Eli Lilly on the dip?
Revenue for GLP-1 drugs misses the mark
On Jan. 14, Eli Lilly released its guidance for the fourth quarter of 2024, as well as the full year of 2025. And investors weren’t thrilled with the numbers, leading to a 7% drop in the share price that day.
Results for the fourth quarter of 2024 should show revenue topping $13.5 billion. That’s an impressive increase of 45% year over year. It is, however, below the guidance the company issued previously. And the key numbers investors were zeroing in on were sales of Mounjaro and Zepbound, which weren’t great either.
For Mounjaro, the diabetes treatment, Q4 sales will total $3.5 billion — well short of analyst estimates of $4.4 billion. For Zepbound, which is approved for weight loss, revenue of $1.9 billion is a bit closer to expectations of $2.1 billion but falls short nonetheless. The company encountered similar issues in October, when those drugs also missed expectations.
The good news for investors is that for 2025, overall guidance is looking strong. Lilly is projecting between $58 billion and $61 billion in sales, which is mostly higher than the $58.4 billion that analysts expected. In its press release, it didn’t provide specific guidance for how its top two drugs will perform over the full year, but it is expecting them to have strong growth.
Why are investors so bearish on Eli Lilly?
A 45% growth rate should be welcome news under normal circumstances for a business, especially when that’s a faster clip than what it’s averaged in the past. Historically, this has been a much slower-growing company than it is today:
LLY Operating Revenue (Quarterly YoY Growth) data by YCharts.
The problem, however, goes back to valuation. Eli Lilly is a stock which you might consider to be “priced to perfection” because of how expensive it is. Prior to this recent sell-off, it was trading at well over 100 times its trailing earnings. Even now, with the dip in value, its price-to-earnings (P/E) multiple is close to 80, which still isn’t terribly cheap. Its forward P/E multiple of 32, which is based on analyst earnings expectations, is a bit more tenable but still comes at a bit of a premium.
When investors are paying such high price tags for a stock, expectations are high, and any kind of miss can result in a steep correction. Lilly is by no means in bad shape, but because the stock’s price has become so inflated in recent years, so have expectations.
Is Eli Lilly stock a good buy right now?
Eli Lilly’s stock is off to a tough start in 2025, and it could continue that way unless Mounjaro’s and Zepbound’s performances improve. If you’re looking at the near term, you could argue that the stock may be in danger of facing an even steeper correction in the months ahead. Investors may worry about rising competition in the GLP-1 market, and perhaps also that missed expectations indicate that demand for these drugs is slowing down.
But rolling out drugs to new markets and ensuring there is sufficient supply can be challenging. Lilly has been struggling to meet demand, and when that happens, it can be difficult to coordinate inventory levels with all of its partners and distributors. Missing sales expectations for one quarter or even multiple quarters can look bad to investors, but it’s not necessarily indicative of a long-term problem for the business.
Eli Lilly still has a couple of fantastic drugs in Mounjaro and Zepbound, which could generate a ton of growth. Given its potential, I still see Lilly becoming the first trillion-dollar healthcare stock down the line. Resist the temptation to get too hung up on quarterly results and whether the company misses or beats expectations, as it still has plenty of growth on the horizon.
If you’re a long-term investor, this sell-off could make for a great time to load up on this top healthcare stock.
