Pharmaceutical stocks overall have fared well during this tough year for the market, but Eli Lilly (NYSE:LLY) has been a pharma name that’s truly “crushed it” so far in 2022. LLY stock has rallied 36.2% in the past year, moving 19% higher in the past six months alone.

Mainly, due to enthusiasm for the company’s tirzepatide drug candidate. As I’ve discussed previously, tirzepatide, marketed as Mounjaro, has already received regulatory approval in Europe and Japan for use as a Type 2 diabetes treatment. However, the company is also at work getting Mounjaro approved for use as a treatment for obesity.

If approved, the company could tap into a massive market, generating tens of billions in annual revenue. Add secondary potential catalysts, such as Lilly’s Alzheimer’s treatment candidate, into the mix, and it’s clear that there’s more than “hope and hype” at play with this stock.

LLY Eli Lilly $374.76

Why LLY Stock Can Maintain its Rich Valuation

After moving substantially higher since January, Eli Lilly shares have moved to a valuation that some may perceive as rich. I agree that LLY’s current price-to-earnings (or P/E) ratio of 56.4 does appear steep at first glance. Comparable pharma stocks trade for between 10 and 20 times earnings.

But taking a closer look, it’s clear that LLY stock is anything but overvalued. It may trade at a premium multiple to current results, yet today’s multiple is more than reasonable compared to future potential.

Calling Mounjaro a potential blockbuster drug, may be an understatement, as if this drug obtains approval for use as an obesity treatment, peak annual sales could come in leaps and bounds above the threshold for blockbuster status ($1 billion).

At least, that’s the view of analysts at UBS. Back in September, based on its strong clinical showing, the UBS analyst team argued that Mounjaro could ultimately achieve peak annual sales of $25 billion. Other Wall Street estimates call for peak annual sales of around $15 billion.

Given the pharma industry’s high margins, much of this will fall to the bottom line. The resultant improvement in profitability will likely help LLY maintain (and grow) its valuation.

Additional Catalysts to Consider

It’s important to note that the Mounjaro opportunity isn’t only massive. It could also arrive fairly quickly. As Eli Lilly has obtained Fast Track designation from the Food and Drug Administration (or FDA), Mounjaro could obtain approval as an obesity treatment not too long after its current trial wraps up next April.

However, there’s more in motion to drive LLY stock higher than only the Mounjaro catalyst. Again, this pharma company has an Alzheimer’s-related drug in its pipeline, donanemab. Donanemab may not be as strong of a catalyst for Eli Lilly as a similar candidate, lecanemab, could be for Biogen (NASDAQ:BIIB) and Eisai (OTCMKTS:ESALY).

Still, success with this treatment (which is looking increasingly likely) could provide a substantial lift for LLY. According to estimates from healthcare research firm Evaluate Vantage, this Alzheimer’s drug could generate $6 billion in annual sales by 2026.

It’s also worth mentioning that Eli Lilly has scores of other promising pipeline candidates that are either at the Phase 3 clinical trial stage or have reached the regulatory review stage. Success with any of these candidates could also serve as a secondary catalyst for shares.

Bottom Line on LLY

Instead of overhyped and overvalued, Eli Lilly remains at a more-than-fair price, considering the numerous catalysts currently on the table. While it is not certain that Mounjaro makes it to market as an obesity treatment, the chances of this happening and producing a massive windfall for LLYin turn have increased considerably.

The same goes for donanemab. The commercialization of this treatment stands to also move the needle for shares over the next few years. Besides its growth bona fides, LLY is a high-quality stock, with a strong balance sheet, and a  history of consistent profitability.

LLY’s dividend (forward yield of 1.06%) has also grown at a healthy clip over the past five years, increasing by an average of 13.5% annually. Based on expected profitability growth, there’s a strong chance this trend will continue.

Far from topping out, LLY stock remains a solid opportunity among healthcare stocks.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.