Falling -3.4% today, shares of Eli Lilly and are giving us reason to question their average rating of buy. Did analysts get things wrong about this stock? Let's dive into the numbers to see whether LLY is overvalued at today's price of $731.61 per share.
Eli Lilly and has a P/E ratio of 79.2 based on its 12 month trailing earnings per share of $9.24. Considering its future earnings estimates of $22.66 per share, the stock's forward P/E ratio is 32.3. In comparison, the average P/E ratio of the Health Care sector is 26.07 and the average P/E ratio of the S&P 500 is 29.3.
We can also compare the ratio of Eli Lilly and's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. LLY has a P/B ratio of 46.23, with any figure close to or below one indicating a potentially undervalued company.
A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Eli Lilly and's quick ratio is 0.63. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.
The final element of our analysis will touch on Eli Lilly and's ability to generate cash for the benefit of its shareholders or for reinvesting in the business. For this, we look at the company's levered free cash flow, which is the sum of all incoming and outgoing cash flows, including the servicing of current debt and liabilities. Eli Lilly and has a free cash flow of $792.5 Million, which it uses to pay its shareholders a 0.7% dividend.
At Market Inference, we will keep monitoring Eli Lilly and to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.
