High Margins, 3.5% Discount: Buy Eli Lilly Stock Now
Eli Lilly (LLY) stock might be a good buy now. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Companies like this generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. The market tends to reward that.
What Is Happening With LLY
LLY is up 37% so far this year, but is actually 3.5% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago.
Here is what’s going well for the company. Q3 2025 saw Mounjaro and Zepbound sales exceed $10 billion, propelling significant cash generation. Lilly now captures nearly 60% of the U.S. incretin market, with Zepbound holding 71% of new obesity prescriptions. Despite some recent price adjustments for Zepbound to expand access, robust volume growth continues to drive strong revenue. The company also increased its full-year 2025 revenue outlook to $63-$63.5 billion, reflecting sustained product demand and planned manufacturing expansions.
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LLY Has Strong Fundamentals
- Recent Profitability: Nearly 20.5% operating cash flow margin and 43.0% operating margin LTM.
- Long-Term Profitability: About 17.8% operating cash flow margin and 35.6% operating margin last 3-year average.
- Revenue Growth: Eli Lilly saw growth of 36.8% LTM and 23.4% last 3-year average, but this is not a growth story
- Available At Discount: At P/S multiple of 12.9, LLY stock is available at a 3.5% discount vs 1 year ago.
Below is a quick comparison of LLY fundamentals with S&P medians.
| LLY | S&P Median | |
|---|---|---|
| Sector | Health Care | – |
| Industry | Pharmaceuticals | – |
| PS Ratio | 12.9 | 3.2 |
| PE Ratio | 49.6 | 23.5 |
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| LTM* Revenue Growth | 36.8% | 6.1% |
| 3Y Average Annual Revenue Growth | 23.4% | 5.4% |
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| LTM* Operating Margin | 43.0% | 18.8% |
| 3Y Average Operating Margin | 35.6% | 18.2% |
| LTM* Op Cash Flow Margin | 20.5% | 20.5% |
| 3Y Average Op Cash Flow Margin | 17.8% | 20.1% |
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| DE Ratio | 5.8% | 20.4% |
*LTM: Last Twelve Months
Don’t Expect A Slam Dunk, Though
While LLY stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. LLY took a hit of about 43% in the Dot-Com crash and dropped just over 50% during the Global Financial Crisis. The 2018 selloff was milder, with an 18% dip, and the Covid turmoil dragged it down around 22%. Even the inflation shock caused nearly a 19% pullback. So, despite solid fundamentals, LLY isn’t immune when markets shake — the downside can still be pretty sharp.
If you want more details, read Buy or Sell LLY Stock.
How We Arrived At LLY Stock
LLY piqued our interest because it meets the following criteria:
- Greater than $10 Bil in market cap
- High CFO (cash flow from operations) margins or operating margins
- Meaningfully declined in valuation over the past 1 year
But if LLY doesn’t look good enough to you, here are other stocks that also check all these boxes:
Notably, a portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:
- Average 12-month forward returns of nearly 19%
- 12-month win rate (percentage of picks returning positive) of about 72%
The Right Way To Invest Is Through Portfolios
Individual stocks can soar or tank but one thing matters: staying invested. The right portfolio can help you stay invested, capture upside and mitigate the downside associated with any individual stock.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.