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 income. Because people need their medicine regardless of the economic environment, these players are generally tied to a certain stability and visibility of earnings. But Lilly has stood out from the crowd in recent quarters, also offering investors something generally seen more in tech companies. And that’s a big increase.

This is due to Lilly’s dominance of the multi-billion dollar weight loss drug market. Lilly’s Mounjaro and Zepbound helped double-digit revenue growth — and that drove the stock price higher, with the stock up nearly 60% so far this year. In fact, Lilly’s stock has hit a rare high in the healthcare sector. Today, it trades at over $900 per share.

Lilly may be an older, well-established company, but it has proven to be an interesting player on the move lately as its weight-loss drugs and other growth products have generated growing revenue. The company continues to invest in its pipeline and invest billions of dollars in production capacity. So what’s next for this fiery player? My prediction is that the company’s next big move will be next.

Image source: Getty Images.

Is a stock split ahead?

I predict the pharmaceutical giant will announce a stock split in the coming months. This move doesn’t change anything fundamental about the company or its stock — so the market value remains the same, as well as the valuation and value of your stake if you’re a shareholder at this time. What the split does is lower the price per share by issuing additional shares to current holders.

The new price depends on the split ratio. Lately, companies with shares trading around the $900 level or above – such as Nvidia or Broadcom — launched a 10-for-1 stock split, reducing its stock to about $100.

Why should Lilly consider a breakup? Well, the performance of the action was fantastic, but it can lead to some problem. Even though Lilly’s valuation is reasonable given its future growth prospects, some investors may still be hesitant to buy it at its current price. The level of around $1,000 per share is a psychological barrier. Some investors believe that is too much to pay for a stock and expect this to affect its ability to climb much further.

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 also limit the stock’s upside potential. By launching a split, Lilly could immediately solve this problem, making it easier for a wider range of investors to buy the stock. Nvidia and others that have announced splits lately have said that was why they launched such operations.

A sign of confidence from Eli Lilly

Another reason why a split would be a good idea for Lilly right now is that it gives investors a sign of confidence. The point is that management is confident that after the stock split, the stock has what it takes to grow again. Of course, the split itself is not what will lift the stock. Positive product news or news about ongoing candidates will do the trick.

Because 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 three trials — now is the perfect time to announce a stock split. Zepbound’s sales growth and the progress of its Phase 3 candidates could be significant catalysts for the stock’s performance in the coming months, and with a more easily accessible price, the stock could take off.

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