Do Eli Lilly's (NYSE:LLY) Earnings Warrant Your Attention?

By
Simply Wall St
Published
April 19, 2021
NYSE:LLY

Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Eli Lilly (NYSE:LLY). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Eli Lilly

How Fast Is Eli Lilly Growing Its Earnings Per Share?

In the last three years Eli Lilly's earnings per share took off like a rocket; fast, and from a low base. So the actual rate of growth doesn't tell us much. Thus, it makes sense to focus on more recent growth rates, instead. Like a wedge-tailed eagle on the wind, Eli Lilly's EPS soared from US$4.99 to US$6.82, in just one year. That's a commendable gain of 37%.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Eli Lilly shareholders can take confidence from the fact that EBIT margins are up from 27% to 31%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:LLY Earnings and Revenue History April 19th 2021

Fortunately, we've got access to analyst forecasts of Eli Lilly's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Eli Lilly Insiders Aligned With All Shareholders?

Since Eli Lilly has a market capitalization of US$172b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$281m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Does Eli Lilly Deserve A Spot On Your Watchlist?

You can't deny that Eli Lilly has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. Before you take the next step you should know about the 1 warning sign for Eli Lilly that we have uncovered.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. 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.
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