Prediction: This Will be Eli Lilly's Next Big Move.

Eli Lilly (LLY -0.13%) offers investors the same thing as many other big pharma companies: a certain level of security when it comes to revenue. Since people need their medicines regardless of the economic environment, these players generally are linked to some earnings stability and visibility. But Lilly has stood out from the crowd in recent quarters by also giving investors something that’s generally seen more in technology companies. And that’s high growth.

This is thanks to Lilly’s dominance in the billion-dollar weight loss drug market. Lilly’s Mounjaro and Zepbound have helped revenue to soar in the double digits — and that’s resulted in a surging share price too, with the stock advancing nearly 60% so far this year. In fact, Lilly’s stock has reached a level that’s rare in the healthcare sector. Today, it trades for more than $900 a share.

Lilly may be an older, well-established company, but it’s proven itself to be an exciting player on the move in recent times too as its weight loss drugs and other growth products delivered increasing revenue. The company continues to invest in its pipeline as well as pour billions of dollars into manufacturing capacity. So, what’s next for this red-hot player? My prediction is the company’s next big move will be the following.

Image source: Getty Images.

Is a stock split ahead?

I predict the pharma giant will announce a stock split in the coming months. This move doesn’t change anything fundamental about the company or its stock — so market value remains the same, as well as valuation and the value of your holding if you’re a shareholder right now. What the split does is lower the per-share price through the issuance of additional shares to current holders.

The new price depends on the ratio of the split. In recent times, companies with stocks trading around the $900 level or beyond — such as Nvidia or Broadcom — have launched 10-for-1 stock splits, bringing their shares down to around $100.

Why should Lilly consider a split? Well, the stock’s performance has been fantastic, but it may lead to one particular problem. Even if Lilly’s valuation is reasonable considering future growth prospects, some investors still may hesitate to buy it at the current price. The level of around $1,000 a share represents a psychological barrier. Certain investors see it as too much to pay for one share, and they expect this to weigh on its ability to climb much farther.

In other cases, investors simply don’t have that much to invest, so if they want to buy Lilly stock, they have to turn to fractional shares — and some brokerages don’t offer them. This could limit the share’s potential moving forward too. By launching a split, Lilly could immediately address this problem, making it easier for a broader range of investors to buy shares. Nvidia and others that have announced splits in recent times have said that was their reason for launching such operations.

A sign of confidence from Eli Lilly

Another reason a split would be a good idea for Lilly right now is it offers investors a sign of confidence. The idea is management is confident that after splitting the stock, that stock has what it takes to soar once again. Of course, the split itself isn’t what will lift the stock. Positive product news or news about candidates in the pipeline will do that job.

Since Lilly is in the early days of its weight loss drug growth story — Zepbound won approval late last year and other candidates are in phase 3 studies — now is the perfect time to announce a stock split. Zepbound’s sales growth and progress of the phase 3 candidates could be significant catalysts for stock performance in the coming months, and with a more easily accessible price, the shares could take off.

And that’s why my prediction is Lilly’s next big move will be a stock split, a decision that should be positive for the company and investors over time.