Why Eli Lilly Stock Just Dropped

<p>Eli Lilly (NYSE: LLY) stock tumbled 5% through noon ET Tuesday. You can blame investment bank HSBC for that.</p>
<p>HSBC, you see, just downgraded Lilly stock <a href="https://www.fool.com/investing/how-to-invest/stocks/when-to-sell-stocks/?utm_source=yahoo-host-full&amp;utm_medium=feed&amp;utm_campaign=article&amp;referring_guid=1c851c78-9a20-43c6-99fd-4a71c5b64e8e">to sell</a>.</p>
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<h2>What HSBC just said about Eli Lilly stock</h2>
<p>Well, technically, the word HSBC used was "reduce," but it amounts to the same sentiment.</p>
<p>Most analysts forecast a total addressable market (TAM) for obesity drugs such as Novo Nordisk's (NYSE: NVO) Ozempic, and Lilly's Zepbound at over $150 billion. HSBC analyst Rajesh Kumar, however, thinks this number is optimistic. Looking as far out as 2032, he sees GLP-1 weight-loss drugs generating only $80 billion to $120 billion in annual revenue.</p>
<p>One problem with other analysts' predictions is that, although GLP-1 drugs fetch rich prices, these prices are falling, and future "price competition is likely to be significant." Another is that not all patients who start taking GLP-1 drugs will continue taking them, as shown by clinical trial discontinuation rates.</p>
<p>Already in 2025 and 2026, we've seen multiple rounds of price cuts between the <a href="https://www.fool.com/investing/how-to-invest/stocks/how-to-invest-in-ozempic-stock/?utm_source=yahoo-host-full&amp;utm_medium=feed&amp;utm_campaign=article&amp;referring_guid=1c851c78-9a20-43c6-99fd-4a71c5b64e8e">two big GLP-1 companies</a>. Lilly's guidance suggests the company plans to make up the price cuts on volume, so to speak, to keep growth going -- but Kumar isn't convinced. (Nor am I.)</p>
<h2>What this means for Eli Lilly investors</h2>
<p>Priced at 43 times trailing earnings, and more than twice that when valued on free cash flow (Lilly claims net earnings much bigger than its actual cash profits), Eli Lilly's valuation depends greatly on its growth rate. Analysts polled by <a href="https://www.spglobal.com/market-intelligence/en">S&amp;P Global Market Intelligence</a>, though, see earnings growing 22% or less annually over the next five years.</p>
<p>Even assuming that's correct, the stock looks richly valued to me. If Kumar is right, Lilly stock could be even more expensive than it looks.</p>
<h2>Should you buy stock in Eli Lilly right now?</h2>
<p>Before you buy stock in Eli Lilly, consider this:</p>
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