Down More Than 20% From Its High, Is Now the Time to Buy Eli Lilly Stock?

Eli Lilly (NYSE: LLY) is the most valuable healthcare stock in the world, with a market capitalization of nearly $700 billion. But in recent weeks, its share price has been falling. And now the stock is down over 20% from its 52-week high of $972.53. Could this be a great time to add the high-powered healthcare stock to your portfolio?

Why is Eli Lilly stock struggling of late?

Eli Lilly has been a fantastic growth stock to own in recent years. Entering trading this week, its five-year returns have totaled more than 550%. And that means a high valuation may have a lot to do with hesitancy from investors as there may be a lot of concern that the stock has become too expensive -- shares of Eli Lilly are trading at a price-to-earnings (P/E) multiple of more than 80.

Even with the stock's recent drop in value, it is trading at an elevated valuation compared with what it has averaged in recent years.

LLY PE Ratio data by YCharts

Investors may also be concerned that under a new presidential administration, there could be different policies put in place that may impact drug pricing. Last week, the stock closed at $748.01, which is a 7% decline from the $804.73 it closed at on the day of the election, on Nov. 5.

Should investors be concerned about Eli Lilly?

Eli Lilly is a top healthcare company with an extremely promising drug in tirzepatide in its portfolio, which has the potential to best the best-selling drug ever, with analysts estimating that its peak annual sales could top more than $50 billion. The drug has already obtained approval from regulators for diabetes (Mounjaro) and weight loss (Zepbound).

It may also obtain approval to treat sleep apnea in the near future, which would be a game changer for the business, regardless of who is in the White House. The drug is in extremely high demand and could be a growth catalyst for Eli Lilly for years to come.

In the trailing 12 months, Eli Lilly has generated $40.9 billion in revenue and $8.4 billion in profit. It was just a couple of years ago where the business was reporting sales of around $28 billion and showing minimal growth. But now, the company is growing at a much more impressive pace, and it's still on the cusp of even more amazing growth in the not-too-distant future.

While Eli Lilly's valuation does look high, over time its continued growth should enable that hefty P/E multiple to come down. And if you believe, as I do, that the stock may potentially top a $1 trillion valuation in the future, there's good reason to remain bullish on Eli Lilly despite its recent struggles.

Investors should take the opportunity to load up on Eli Lilly stock

Eli Lilly has enormous growth potential, which is why you probably won't see the stock trading at 20 or 30 times earnings anytime soon. Investors are paying a premium for the business, largely due to tirzepatide and the phenomenal growth potential it possesses.

This is a solid business to invest in, and if you can get it at any kind of discount, it could be a no-brainer worth buying. Eli Lilly is one of the top healthcare stocks you can own for the long haul, and now can be an optimal time to add it to your portfolio.

Should you invest $1,000 in Eli Lilly right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.