Eli Lilly (NYSE: LLY) has been among the hottest growth stocks in the healthcare industry over the past few years. Its robust portfolio of drugs, along with a strong pipeline, has made investors bullish on its future. You might be surprised by the size of the gains the shares have produced over the past 10 years, as well as how much a $10,000 investment would be worth today. I’ll also look at whether there’s still time to invest in the red-hot healthcare stock.
Going back 10 years to the start of November 2013, shares of Eli Lilly were trading at around $50. If you invested $10,000 in the business back then, you would have been able to acquire about 200 shares. There have been no stock splits since, which means that with the healthcare stock, now trading at around $610, has risen by more than 1,100% over the past decade. Those 200 shares would now be worth roughly $122,000.
You may assume that with such lofty returns, the business has been red hot and reporting incredible growth. But if you look at the company’s revenue and profit figures over the years, the chart below doesn’t resemble what you might expect from a company that has been such a great investment:
Data source: YCharts
While Eli Lilly has expanded its top and bottom lines, this is a fairly modest level of growth for a stock that has tallied such significant gains.
Eli Lilly’s long-term gains are a bit deceptive because a large chunk of the run-up in price has come within the past few years. By the end of 2020, the stock was trading around $169. It would finish 2021 at slightly more than $276. And while investors would still be up significantly at either of those points in time, the stock would build on those already impressive gains, because it would go on a tear from 2022 onward, rising by 120%.
For investors who have been following the stock, there’s not much mystery as to what has been driving the recent bullishness. Eli Lilly is a great, diverse healthcare company that generated revenue totaling $28.5 billion last year.
But one asset alone could dwarf that figure, and that’s tirzepatide, which the Food and Drug Administration recently approved as a treatment for chronic weight management under the brand Zepbound. In clinical trials, it has shown that it can help people lose more than 26% of their body weight. Tirzepatide is also approved as a diabetes treatment and it’s sold under the brand Mounjaro.
With peak annual sales of anywhere between $50 billion and $100 billion based on which analysts you believe, the potential upside is tremendous for tirzepatide, and it could truly be a game changer for Eli Lilly’s business.
The company does have other drugs in its pipeline, but nothing looks nearly as promising as Mounjaro and Zepbound. That’s why even at a price-to-earnings multiple of more than 110, investors continue to buy up the stock, knowing that Eli Lilly’s top and bottom lines could easily double — and perhaps triple — in the future.
Depending on your time frame, Eli Lilly could look like a good or a bad buy. Analyst price targets, for instance, suggest that the stock has peaked and that it is due for a decline. But Wall Street’s price targets can quickly become outdated and they normally look at where the stock might be in the next 12 months. If you’re looking at the very short term, there is a possibility that Eli Lilly may run out of steam given the fantastic rally it has had over the past couple of years.
But if you’re looking for an investment you can hang on to for five, 10, or perhaps 20 years, then it’s much easier to make a bullish case for the stock and why it can continue rising in value. For long-term investors, Eli Lilly is still a slam-dunk buy and one of the best healthcare stocks to own. It would be surprising if by the end of the decade, or perhaps even well before then, Eli Lilly isn’t the first trillion-dollar healthcare stock.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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