PFE - Eli Lilly: Yes It Is Too Late To Join The Party

2024-02-20 15:45:00 ET

Summary

• Eli Lilly's stock has seen a parabolic rise, with recent gains driven by retail buying, a surge in call option demand, and short covering, taking valuations to extreme levels.
• The stock is trading at 83x earnings, which is 4.2x the average of the rest of the MSCI World Pharmaceutical Index, implying aggressive growth over the coming years.
• Even optimistic revenue growth projections do not justify the current valuation, and any weakness could trigger a violent reversal given how optimistic investors have become.

Eli Lilly (NYSE: LLY ) has seen a parabolic rise that has accelerated in a classic bubble formation. After a complete frenzy in call option buying and retail interest in the stock, investors are betting heavily in favour of further gains, despite it trading at 83x earnings, more than 4x the pharmaceutical industry average. Even under optimistic revenue growth assumptions, LLY now seems significantly overvalued, and a reversal of speculative activity could cause a large correction....

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