Eli Lilly: A Pipeline-Driven Growth Story Trading 30% Below What the Business Is Actually Worth

Eli Lilly already runs one of the fastest-growing drug businesses on earth, and its most powerful drug is not even approved yet.

WHERE THE STOCK SITS TODAY

The current price is around $907 (25/03/2026). The fair value estimate on this model is $1,201.35, suggesting roughly 24 to 30% undervaluation depending on the assumptions you use. That gap exists because the model's default growth rate of 12.71% per year is actually more conservative than Lilly's own historical growth rate of 18.74%, and dramatically more conservative than management's current guidance of 25% growth for 2026. When you adjust the inputs to better reflect reality, the fair value range sits between $1,150 and $1,200 today, with a projected 2031 share price of $1,650 to $1,720. The stock needs to roughly double from here over five years just to reach what a conservatively modelled version of the business is worth.

WHAT THE BUSINESS ACTUALLY DOES

Eli Lilly makes injectable drugs that help people lose weight and manage diabetes. Their two main products are called Mounjaro and Zepbound. In 2025, those two drugs alone generated $36.5 billion in sales, and both were still growing at triple-digit rates at year end. Total company revenue for 2025 came in at $65.2 billion, up 45% from the year before. For 2026, management is guiding $80 to $83 billion, which is another 25% increase on top of that already enormous base. These are not normal pharmaceutical growth rates. The average pharma company grows at 0.41% per year. Lilly is growing at nearly 19% historically and 45% recently.

The reason the profit margins are so strong, currently around 31 to 32% net, is that once a drug gets past the expensive development phase, manufacturing it is relatively cheap but selling it is enormously profitable. These GLP-1 drugs carry gross margins above 80%, meaning for every dollar of sales, more than 80 cents is profit before operating costs. As the business scales, those margins hold or improve.

THE BIGGER STORY: THE DRUG NOT YET IN THE PRICE

This is the most important section. Lilly has a next-generation weight loss drug called retatrutide currently completing its final round of clinical trials. It works differently from everything on the market today. Current drugs activate one or two biological signals in the body to suppress appetite and manage blood sugar. Retatrutide activates three simultaneously, making it meaningfully more powerful than anything currently approved.

In December 2025, the first major Phase 3 trial results showed patients losing up to 28.7% of their body weight, with no plateau observed through 68 weeks of treatment. Drugs currently on the market deliver 15 to 22% weight loss and tend to level off. In March 2026, a second Phase 3 trial in type 2 diabetes also hit every target, showing strong blood sugar improvements alongside 17% weight loss and measurable improvements in cholesterol and blood pressure at the same time.

Seven more trial readouts are still coming throughout 2026, covering conditions including sleep apnea, liver disease, heart disease, and chronic joint pain. Each of those is a separate market worth billions. An FDA filing is projected for late 2026, with approval potentially in 2027. Analysts at GlobalData project retatrutide could generate $15.6 billion in annual sales by 2031 on its own. None of that revenue is in the current price, the current model, or the current analyst consensus. It is entirely upside that materialises only if the trials continue to hold, which so far they have done well beyond expectations.

THE SECOND CATALYST: THE PILL

Alongside retatrutide, Lilly has an oral version of its GLP-1 drug called orforglipron, which is a weight loss pill rather than a weekly injection, and is pending FDA approval in mid-2026. This matters more than it might sound. A significant portion of patients who would benefit from these drugs never start them because they are uncomfortable with needles. A pill version removes that barrier entirely and opens the addressable market to a much larger patient population. That is a volume driver that compounds quietly over years.

THE NUMBERS BEHIND THE FAIR VALUE

The model uses four inputs to arrive at the fair value. Growth rate, which has been adjusted to 18% to reflect reality rather than the overly conservative 12.71% default. A future PE ratio of 30 times earnings in 2031, down from today's 39 times, which accounts for the natural compression in valuation multiples as a company matures and grows larger. A discount rate of 7.5%, slightly above the default of 6.98%, to honestly account for the pipeline risks that still exist. And earnings by 2031 of approximately $48 to $50 billion, above the model's $41.5 billion, because at 18% growth and stable margins, that is where the numbers actually land.

At 30 times those earnings, the 2031 market cap reaches approximately $1.44 to $1.5 trillion. Divided across 873 million shares, that produces a 2031 share price of $1,650 to $1,720. Discounted back to today at 7.5%, fair value lands between $1,150 and $1,200. Against a current price of $907, that is a margin of safety of 27 to 32%.

THE RISKS: WHAT COULD GO WRONG

The bear case is legitimate and should not be glossed over. HSBC downgraded the stock to reduce in March 2026, arguing that the total addressable market for obesity drugs has been overstated by the market at around $150 billion, and is more likely $80 to $120 billion by 2032. Pricing pressure is also real and already happening. Lilly recently cut Zepbound's self-pay price to $299 per month as competition with Novo Nordisk intensifies, and US government Medicare pricing caps are compressing the margins on every unit sold. The stock is already down about 10% from its January 2026 high of $1,133, which reflects genuine investor concern about how the pricing war plays out.

On the pipeline, any unexpected safety issue in the remaining retatrutide trials, or a higher-than-acceptable rate of patients stopping treatment due to side effects, would remove a meaningful portion of the thesis. These are real risks, which is why the 7.5% discount rate is used rather than the default, and why the PE assumption of 30 times rather than today's 39 times is deliberately conservative.

THE BOTTOM LINE

You are buying a business already growing at 25% annually, with its most important new drug not yet approved and not yet reflected in any revenue number, at a price that a conservative model says is 27 to 32% below fair value. The pricing headwinds are real, but they are happening to a company with manufacturing scale, regulatory depth, and a next-generation compound that has already beaten the highest analyst expectations in Phase 3. That is the story. Everything after this is just watching the trial readouts come in.