It's been a great morning session for Eli Lilly and Company investors, who saw their shares rise 1.8% to a price of $755.07 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Trades Below Its Graham Number but Has an Elevated P/B Ratio:
Eli Lilly and Company discovers, develops, and markets human pharmaceuticals worldwide. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 30.21 and an average price to book (P/B) ratio of 4.08. In contrast, Eli Lilly and Company has a trailing 12 month P/E ratio of 137.3 and a P/B ratio of 60.52.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Eli Lilly and Company's PEG ratio is 1.14, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
Strong Revenue Growth With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $21,493 | $22,320 | $24,540 | $28,318 | $28,541 | $32,072 |
| Revenue Growth | n/a | 3.84% | 9.95% | 15.4% | 0.79% | 12.37% |
| Operating Margins | 17% | 24% | 28% | 22% | 24% | 19% |
| Net Margins | 15% | 37% | 25% | 20% | 22% | 16% |
| Net Income (MM) | $3,232 | $8,318 | $6,194 | $5,582 | $6,245 | $4,988 |
| Net Interest Expense (MM) | $242 | $401 | $360 | $340 | $332 | $432 |
| Depreciation & Amort. (MM) | $1,609 | $1,233 | $1,324 | $1,548 | $1,522 | $1,515 |
| Earnings Per Share | $3.13 | $0.89 | $6.79 | $6.12 | $6.9 | $5.52 |
| EPS Growth | n/a | -71.57% | 662.92% | -9.87% | 12.75% | -20.0% |
| Diluted Shares (MM) | 1,034 | 9,357 | 913 | 912 | 905 | 900 |
| Free Cash Flow (MM) | $4,314 | $3,803 | $5,112 | $5,951 | $5,230 | $2,836 |
| Capital Expenditures (MM) | $1,211 | $1,034 | $1,388 | $1,310 | $1,854 | $2,878 |
| Current Ratio | 1.73 | 1.16 | 1.4 | 1.23 | 1.05 | 1.05 |
| Total Debt (MM) | $12,742 | $15,138 | $16,357 | $18,280 | $16,316 | $2,245 |
| Net Debt / EBITDA | 1.02 | 1.97 | 1.48 | 1.88 | 1.71 | -0.02 |
Eli Lilly and Company has rapidly growing revenues and increasing reinvestment in the business and strong operating margins with a stable trend. Additionally, the company's financial statements display positive EPS growth and healthy leverage levels. However, the firm has positive cash flows. Finally, we note that Eli Lilly and Company has just enough current assets to cover current liabilities, as shown by its current ratio of 1.05.
