Space Exploration Technologies (SPCX +4.06%) completed the world’s biggest initial public offering earlier this month and exploded onto the market with a trillion-dollar valuation. The operation was well oversubscribed as investors rushed to get in on shares of the industrial and tech giant at the $135 IPO price. The stock went on to climb nearly 20% from that level on its first day of trading.
But, in recent days, SpaceX stock has retreated from its peak and finished last week only three dollars above its IPO opening price of $150. It’s important to keep in mind that, though SpaceX is delivering growth, it still involves plenty of risk. So it may not be the best bet for every investor right now.
The good news is there’s another stock out there that also offers tremendous growth — and comes with a lot less risk. And that’s pharma giant Eli Lilly (LLY 2.34%), the leader in the exciting weight loss drug market. Let’s check out five reasons Lilly is a better stock to buy now than SpaceX.
Image source: Getty Images.
1. Lilly’s technology is ready now
Over the years, Lilly has won approval for a wide variety of drugs across treatment areas, proving its technology works — and the area of great focus right now and likely into the future is the company’s weight loss drug portfolio. Lilly operates in the GLP-1 space and dominates the U.S. market, holding more than 60% share.
Though SpaceX has made accomplishments across its space, connectivity, and artificial intelligence (AI) businesses, it notes in its prospectus that certain goals depend on technology that hasn’t yet been proven. This presents a risk for investors.
2. Lilly’s pipeline may keep the growth going
Lilly’s weight loss drugs are generating double- and triple-digit growth right now, with Mounjaro and Zepbound together bringing in more than $12 billion in the latest quarter. The company recently launched Foundayo, an oral weight loss drug, and has a candidate in late-stage trials. And the company has candidates in earlier-stage trials too.
If even only a couple of the candidates make it to commercialization, this could drive significant revenue growth for Lilly.
Today’s Change
(-2.34%) $-28.80
Current Price
$1201.13
Key Data Points
Market Cap
$1.2T
Day’s Range
$1190.23 – $1232.94
52wk Range
$623.78 – $1238.00
Volume
149.5K
Avg Vol
3.3M
Gross Margin
82.83%
Dividend Yield
0.53%
3. Lilly’s track record of profitability
Lilly offers investors a long history of earnings and revenue growth, so investors don’t have to worry about whether the company has what it takes to generate a profit. It also has a portfolio of products that ensures a certain level of revenue year after year.
SpaceX last year reported a $4.9 billion loss, and considering the research and development needed to support its ambitions, costs may increase, and losses could continue. Capital expenditures in the AI business alone last year totaled more than $12 billion. So investors seeking a company that’s likely to deliver profitability year after year clearly are better off choosing Lilly today.
Space Exploration Technologies
Today’s Change
(4.06%) $6.67
Current Price
$170.86
Key Data Points
Market Cap
$2.2T
Day’s Range
$161.64 – $172.40
52wk Range
$147.11 – $225.64
Volume
80M
Avg Vol
204.2M
4. Lilly’s valuation looks reasonable
Lilly stock isn’t dirt cheap, but considering the company’s earnings track record and future prospects, it looks reasonable at 33x forward earnings estimates — and it’s less expensive than it was earlier this year when it traded at more than 40x estimates.
Meanwhile, SpaceX, trading at more than 100x sales, looks pricey. The company’s total capex of $20 billion exceeded its sales of $18 billion last year. And, as mentioned above, this trend probably is far from over.
5. Lilly offers passive income
SpaceX doesn’t offer a dividend, of course, and that’s to be expected — the company is closely focused on growth at this stage of its story. So, if you invest in SpaceX, you can benefit if the company reaches certain milestones and the stock price takes off. But you aren’t guaranteed returns from this stock on an annual basis.
With Lilly, you could benefit from both stock performance and passive income. Lilly pays a dividend of $6.92, representing a dividend yield of 0.5%, and has the free cash flow to support ongoing payments.
LLY Free Cash Flow data by YCharts
It’s true that SpaceX may deliver a greater short-term gain than Lilly if it meets a certain goal or announces good news, but it still comes with a lot of risk. Lilly, thanks to its strength in the weight loss drug market and all of the points I’ve mentioned above, offers investors a clearer path to fantastic returns. And that’s why it’s a better stock to buy now.
