Stocks splits have been a huge market theme in 2024, with big names across industries, from technology giant Nvidia to consumer stock Walmart completing such operations. Companies often launch this move after a long period of gains as a way to make their stock price more accessible to a wide range of investors. A stock split doesn’t change the overall market value of a company or anything fundamental — but through the issuance of more shares to current holders, it lowers the per-share price.
Since stock splits don’t impact the company’s earnings or future prospects, they aren’t catalysts for share price performance — investors generally won’t buy or sell a stock just because it completed a stock split. But investors still like these operations for at least two reasons. First, as mentioned, they open up the investment opportunity to more people, and second, a split suggests a company is confident in its future — with the idea that the stock will rise again from the new lower price.
And that’s why investors are always on the lookout for the next stock split, particularly when a company’s shares have soared. Today, as we search for an upcoming stock-split candidate, we can consider a major pharmaceutical company that sells one of the world’s most in-demand products. Will this company announce a stock split in 2025? Let’s gather some clues.
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Lilly’s weight loss portfolio
The company I’m referring to is Eli Lilly (LLY -1.38%), maker of a wide variety of drugs across indications such as oncology and diabetes. But the Lilly portfolio that’s getting the most attention these days is the weight loss one. Lilly sells the molecule tirzepatide under the name Zepbound for weight loss and under the name Mounjaro for type 2 diabetes, but doctors have prescribed either one for patients looking to lose weight.
Both of these drugs have become blockbusters, and high demand suggests growth will continue. The obesity drug market may reach $130 billion by the end of the decade, according to Goldman Sachs Research. And Lilly, a leader in the market along with rival Novo Nordisk, is likely to benefit from the opportunity.
The popularity of Zepbound and Mounjaro has helped Lilly report double-digit revenue growth in recent quarters. And this also has resulted in strong share price performance for the company. Regulators first approved Mounjaro in May 2022 for type 2 diabetes, but as mentioned, doctors also prescribed the drug off-label for weight loss. The U.S. Food and Drug Administration then approved Zepbound for weight management a year ago.
From the Mounjaro approval through today, Lilly stock has gained about 160% and now trades for more than $700 a share. At its peak in September, it traded at about $960.
A potential stock split?
Considering this fantastic performance, investors have been wondering whether this big pharma company will launch a stock split. History shows us Lilly is open to such operations because it launched four in the past. But it’s important to note that the most recent one was back in 1997. So this hasn’t been part of Lilly’s recent story.
And, today, Lilly’s stock has come down from that near-$1,000 level that sometimes represents a psychological barrier for investors: They see the stock as expensive at such a price even if its valuation looks fine. I actually thought Lilly would launch a stock split earlier this year, as the price soared beyond $900, but that didn’t happen. These points don’t support the idea of a new split on the horizon.
Still, Lilly is trading close to a record high and at a price level that’s well above peers’ — including fellow weight loss drug leader Novo Nordisk.
LLY data by YCharts
This could make some investors think twice before investing in Lilly, and that may hurt the stock’s momentum.
The recent pullback we’ve seen in Lilly shares could prompt management to consider the idea of a split as a way to open up the investment opportunity to more investors and remind them that the weight loss drug story may be in its early chapters. That’s why I’m still watching for a stock-split announcement from this big pharma player — and it could happen as early as 2025 as Lilly’s weight loss drugs continue to deliver blockbuster revenue and solid growth.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Merck, Nvidia, and Walmart. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
