Eli Lilly and Company (NYSE:LLY) has delivered the kind of growth that helps explain why investors are willing to pay a premium for its shares. The stock has returned over 55% in the past 12 months, compared with a nearly 14% growth of the S&P 500.
That multiple reflects substantial expectations for future profitability. With Mounjaro and Zepbound continuing to drive extraordinary sales growth, the question is whether Lilly can maintain enough earnings momentum to support its valuation as the business expands. But before we dive into Lilly’s investment case, there are nine healthcare stocks other than LLY in our ranking of the best healthcare stocks to buy according to hedge funds. Check out the complete list here.
Bull Case
Lilly’s second-quarter results provide considerable support for its growth expectations. Revenue increased 48% year over year to $23.0 billion, driven by a 60% increase in volume, while non-GAAP earnings per share rose 33% to $8.38. Mounjaro generated $9.9 billion in quarterly revenue, up 91%, while Zepbound contributed $4.9 billion, growing 44%. Together, the two medicines accounted for a sizeable chunk of the company’s total revenue.
That concentration reflects the extraordinary commercial scale Lilly has achieved in diabetes and obesity treatments. More importantly, rising demand is translating into higher companywide expectations. Management raised its full-year revenue guidance to $85 billion–$87 billion from $82 billion–$85 billion. For an expanded insight into the company’s bull and bear case, read Eli Lilly vs. Novo Nordisk: Has GLP-1 Manufacturing Become the New Competitive Moat?.
Profitability also provides encouragement for investors. Lilly’s non-GAAP gross margin as a percent of revenue improved to 86.3%, up 1.3 percentage points, supported by improved cost of production and a favorable product mix. The company is investing to sustain that momentum. Lilly committed an additional $4.5 billion to expand manufacturing capacity in Indiana, while its newer treatments offer opportunities beyond the current injectable franchise.
Foundayo, Lilly’s oral GLP-1 medicine, generated $98 million in second-quarter revenue. Meanwhile, investigational obesity treatment retatrutide delivered positive Phase 3 results, with management planning an FDA submission in early 2027. These developments could broaden Lilly’s future commercial opportunities, although the financial contribution from its pipeline remains uncertain.
One of the most watched competitions in the GLP-1 market is between Lilly and Novo Nordisk. Read more about how their investment cases compare to each other in our insightful article on Can Eli Lilly Catch Novo Nordisk in the Oral GLP-1 Race?.
Bear Case
The biggest question is how effectively Eli Lilly and Company (NYSE:LLY) can translate exceptional demand into sustained earnings growth. Second-quarter revenue benefited from a 60% increase in volume, partially offset by a 13% decline in realized prices. Although strong volume growth more than compensated for lower pricing, this relationship deserves attention as the business expands.
The geographical differences are also revealing. Outside the United States, revenue increased 80%, supported by 113% volume growth, while realized prices declined 36%. Lilly attributed much of that international pricing pressure to Mounjaro’s inclusion on China’s National Reimbursement Drug List.
Earnings also require context for this investment thesis. Management raised its underlying full-year non-GAAP EPS outlook by $2.78 at the midpoint, but acquisition-related research and development charges of $3.03 per share more than offset the increase in its published guidance.
Consequently, the reported guidance does not fully capture the improvement management identified in underlying operations, but the acquisition expenses remain relevant to evaluating Lilly’s financial performance. At the current multiple, investors are paying for a company whose rapid expansion must continue supporting substantial profit growth.
What Does the Valuation Tell Us?
Lilly’s growth is exceptional, and improvements in gross margin demonstrate that expanding sales can support profitability even as realized prices decline.
However, its valuation makes the relationship between volume, pricing, and earnings increasingly important. The current results support Lilly’s premium growth narrative, but they do not establish how much of that growth will persist. Future earnings performance, rather than sales momentum alone, will determine whether the company’s valuation remains supported by its financial results.
READ NEXT: Can Eli Lilly Catch Novo Nordisk in the Oral GLP-1 Race? AND Abbott vs. Intuitive Surgical: Is Consistent Growth Better Than Premium Growth?
This article is originally published at Insider Monkey.
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