• If you are wondering whether Eli Lilly stock still offers value at current levels, the answer depends heavily on which valuation lens you use and how you weigh future expectations against today's price.
• The stock recently closed at US$1,131.42, with returns of 2.4% over the past week, 19.3% over the past month, 4.7% year to date, 48.0% over the last year and 159.1% over the past three years.
• Recent headlines have continued to focus on Eli Lilly's role in large pharmaceutical markets and the broad interest in therapies where it is an important player. This backdrop helps explain why sentiment around the stock has remained in focus for many investors.
• Even so, the company currently has a valuation score of 1 out of 6. This means only one of the six valuation checks points to the stock being undervalued. The sections that follow will compare the main valuation approaches before finishing with a broader way to think about what the current price really implies.

Eli Lilly scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Eli Lilly Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting the company’s future cash flows and discounting them back to today’s value. It is essentially asking what all those future dollars are worth in today’s terms.

For Eli Lilly, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $8.6b. Analysts provide detailed free cash flow estimates out to 2030, with Simply Wall St extrapolating additional years beyond the analyst horizon.

The ten year projections, which include both analyst estimates and extrapolated figures, reach a projected free cash flow of $46.8b in 2030, with discounted values provided for each year. Based on these projections and the discount rate applied, the model arrives at an estimated intrinsic value of about $1,404 per share.

Compared with the recent share price of $1,131.42, the DCF output indicates that Eli Lilly stock trades at roughly a 19.4% discount on this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Eli Lilly is undervalued by 19.4%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Approach 2: Eli Lilly Price vs Earnings

For a profitable company, the P/E ratio is a useful shorthand because it links what you pay for the stock to the earnings it is currently generating. It lets you quickly see how many dollars investors are willing to pay for each dollar of earnings.

What counts as a "normal" or "fair" P/E usually reflects how quickly earnings are expected to grow and how predictable those earnings are. Higher growth and lower perceived risk tend to support a higher P/E, while slower growth or higher uncertainty usually point to a lower P/E.

Eli Lilly currently trades on a P/E of 39.92x. That is above both the Pharmaceuticals industry average P/E of 14.86x and a peer group average of 23.99x, which suggests investors are paying a higher multiple of earnings than for many comparable companies.

Simply Wall St's proprietary "Fair Ratio" for Eli Lilly is 35.64x. This metric aims to estimate what the P/E might be given the company’s earnings growth profile, industry, profit margins, market capitalization and risk factors. Because it adjusts for these elements, it can be more tailored than a simple comparison with broad industry or peer averages.

Comparing the current P/E of 39.92x with the Fair Ratio of 35.64x points to Eli Lilly trading somewhat above that fair value estimate.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Eli Lilly Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, a simple way for you to attach a clear story about Eli Lilly to hard numbers like fair value, and estimates for future revenue, earnings and margins. You can then see how that story stacks up against today’s share price.

On Simply Wall St’s Community page, Narratives turn your view of the company into a structured forecast that links Eli Lilly’s business drivers to a Fair Value. This is then compared to the current price to help you decide whether the stock looks attractive or expensive. That view is kept current by updating when new information such as news, earnings or guidance is added to the platform.

For Eli Lilly, one investor Narrative on Simply Wall St currently anchors around a fair value of US$899.73 based on more cautious assumptions about pricing pressure and growth. Another leans toward US$1,500.00 with more optimistic expectations for obesity and diabetes treatments. By comparing these Narratives side by side you can decide which story, and which set of numbers, feel most aligned with your own view before making any decision.

For Eli Lilly, here are previews of two leading Eli Lilly Narratives:

Fair value in this bullish Narrative: about US$1,189.18 per share.

Implied discount to that fair value at the recent US$1,131.42 price: roughly 4.9% below the Narrative fair value.

Revenue growth assumption in this Narrative: 20% a year.

• Centres on GLP 1 therapies, particularly Mounjaro and Zepbound, as key drivers with patents and exclusivity that run out to about 2036 for Mounjaro.
• Argues that GLP 1 penetration in the U.S. is still low relative to the potential patient pool, with insurance coverage gradually broadening.
• Assumes production capacity is the main bottleneck, so higher output over the next few years is expected to support revenue growth on top of existing demand.

Fair value in this cautious Narrative: about US$899.73 per share.

Implied premium to that fair value at the recent US$1,131.42 price: roughly 25.8% above the Narrative fair value.

Revenue growth assumption in this Narrative: about 12.33% a year.

• Highlights risks from potential U.S. drug pricing reforms, efforts to narrow pricing gaps with Europe, and heavier discounts that could pressure margins on obesity and diabetes drugs.
• Points to concentration in a small group of products and rising R&D and safety requirements as factors that could limit earnings if competition, regulation or safety headlines turn less favourable.
• Frames a fair value closer to the lower end of analyst targets, arguing that current pricing already bakes in optimistic assumptions about obesity market size, reimbursement and long term adherence.

These two Narratives bracket a range of outcomes using the same company, the same set of public data and different but explicit assumptions. You can see the logic on both sides, pressure test each story against your own expectations and then decide where you sit on the spectrum before making any move on Eli Lilly stock.

Do you think there's more to the story for Eli Lilly? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.