Pharmaceutical powerhouse Eli Lilly (NYSE: LLY) is having a great 2024. Shares are up 58% so far this year, handily outperforming both S&P500 And Nasdaq Composite indexes.
Much of the stock’s rise can be attributed to Lilly’s success in the diabetes and obesity care markets thanks to its blockbuster glucagon-like peptide-1 (GLP-1) agonists, Mounjaro and Zepbound. Additionally, Lilly made headlines in July when the company’s Alzheimer’s drug, donanemab, received approval from the Food and Drug Administration (FDA).
About a month ago, Lilly scored another big win, which I think is overshadowed by the company’s success in other areas of healthcare. Below, I’m going to break down Lilly’s latest milestone and why I now see this as a great opportunity to acquire shares.
Lilly’s last victory
In September, Lilly received FDA approval for its atopic dermatitis drug, Ebglyss. Atopic dermatitis is more often called eczema.
Eczema is generally treated with topical medications such as creams, ointments or gels. For some patients, topical solutions are not optimal because symptoms such as dry skin and itching persist.
Ebglyss differs from topical ointments because it is injectable. The drug is marketed specifically for patients with moderate to severe eczema who cannot fully manage their symptoms with topical prescriptions.
A $31 billion opportunity
According to Lilly’s announcement about Ebglyss, there are 16.5 million adults with eczema in the US alone. Additionally, about 40% of this cohort experience “moderate to severe symptoms such as itching, dry and flaky skin, discoloration and rash, which can lead to increased scratching that can cause the skin to crack and bleed.”
To put some numbers on eczema treatment options, Precedence Research estimates that the global total addressable market (TAM) will reach $31.4 billion by 2034 – up from $14.7 billion today . Furthermore, Precedence’s report suggests that North America is the largest market for eczema and could reach $8.1 billion by the middle of the next decade.
Is Eli Lilly a good stock to buy now?
The chart below illustrates the price-to-earnings (P/E) ratio for Eli Lilly over the past six months.
I must immediately admit that a price/earnings ratio of 113 is not cheap.
However, there are some trends from the chart above that I think are worth mentioning and studying a little further. Note that Lilly’s price-to-earnings ratio started to decline between July and August.
At a company-specific level, some of the sell-off can be traced to growing fears that Lilly’s dominance in weight loss will decline as new products from competitors enter the market. Additionally, some in the political arena have also taken issue with Lilly’s pricing protocols for Mounjaro and Zepbound.
From a broader perspective, markets in general experienced brutal selling activity over the summer, and Lilly’s price action was also affected by these moves.
And yet, over the past month, Lilly’s price-to-earnings ratio has returned to where it was about six months ago. I find this dynamic odd because Lilly is a very different company today than it was just a few months ago.
The company now has capabilities in Alzheimer’s disease, eczema and even artificial intelligence (AI). So while Lilly’s stock isn’t trading at a bargain by any means, I think the stock may be underpriced given the tremendous potential the company has outside of weight management.
Lilly’s approval for eczema appears to be another step toward building one of the most prolific pharmaceutical companies on the market. I view the stock as an attractive buy for long-term investors and believe Lilly’s growth is just beginning.
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Adam Spatacco has positions in Eli Lilly. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
1 Reason to Buy Eli Lilly Stock Hand Over Fist Right Now was originally published by The Motley Fool
