Companies valued at more than a trillion dollars are a rare breed, at least for now. In the years and decades to come, many more companies will join this elusive group. And the next one to achieve this feat could be Eli Lilly (LLY -1.01%).

The pharmaceutical giant is one of the companies that are on the verge of a $1 trillion market cap. Here’s why the drugmaker could beat its competitors and continue to grow long afterward.

Will the rating be a problem?

Eli Lilly’s market capitalization is $885 billion at the time of writing. At this level, it may not seem like a competition; the stock could easily break the $1 trillion mark within a year. But other companies are also close. At least one of them, Berkshire-Hathawayis closer with a market capitalization of 930 billion US dollars.

The main reason Lilly could still make it into the trillion-dollar club, ahead of Berkshire Hathaway and all similarly sized competitors, is the incredible pace of growth that has been a hallmark of the past few years. The company has grown faster than the next likely cohort of trillion-dollar companies, a group that includes Taiwan Semiconductor, BroadcomAnd Tesla(Tesla was briefly worth $1 trillion in late 2021, but has not performed well since then.)

LLY data from YCharts.

But what is the biggest obstacle to a trillion-dollar valuation? That’s exactly it: valuation. The price-to-earnings ratio (P/E) is 59.01 – high by almost any metric. The healthcare industry average is 19.1. In other words, any perceived problem with the company could lead to a significant correction in the stock price.

The expected P/E ratio of Berkshire Hathaway, on the other hand, is a much more reasonable 19.8. However, it must be remembered that many of the stocks in this group do not appear particularly cheap.

LLY P/E (Forward); data from YCharts.

Again, it’s important to note that Lilly’s past performance is no guarantee that the company will continue to grow faster than any other company in the billion-dollar bracket. Nevertheless, the company’s financial results continue to be impressive.

In the second quarter, revenue rose 36% year over year to $11.3 billion. Adjusted earnings per share (EPS) rose 86% year over year to $3.92. And Lilly raised its forecast for the full fiscal year, the second time this year.

Even management, which knows the subject matter better than anyone else, underestimates the company’s revenue and profit potential. Shares rose more than 8 percent after the release of the second-quarter earnings report.

And there’s more to it. Last year, Lilly sold the rights to Basqimi, a drug used to treat hypoglycemia. Without the $579 million in revenue generated by the sale of the rights to Basqimi in the second quarter of 2023, sales would have increased by 46%. The drugmaker also recently received approval for Kisunla, a drug used to treat early symptomatic Alzheimer’s disease.

This is likely to be another important growth driver for the pharmaceutical company, as there is a great need in this area. The bottom line is that Lilly’s shares have performed so well in recent years because of the company’s impressive clinical and regulatory progress. The company is now benefiting from this with excellent financial results and should continue to do so for the foreseeable future.

Currently, Wall Street analysts expect earnings per share to grow at an average annual rate of 76% over the next five years. With such projections, the company’s valuation makes far more sense.

Eli Lilly could The stock performed significantly better than Berkshire Hathaway and at least as well – or at least not significantly worse – than other stocks within reach, becoming the first to reach a trillion dollars.

Beyond the trillion dollar mark

What happens when Lilly becomes a $1 trillion company? The pharmaceutical company is likely to continue growing for a long time after that. It still has several important drugs in the pipeline that look incredibly promising.

Developing innovative therapies – one of the most important aspects of a successful pharmaceutical company – is exactly what Eli Lilly offers. Its product pipeline currently includes products such as orforglipron and retatrutide, two potential obesity drugs. Weight loss treatments have played an important role for Eli Lilly recently.

Despite increasing competition in this field, the company is likely to be one of the market leaders. According to research firm Evaluate Pharma, orforglipron and retatrutide could generate sales of $8.3 billion and $5 billion, respectively, by 2030. Both are in Phase 3 trials.

Lilly’s early-stage programs include a potential gene therapy for hearing loss that has already cured one patient in a Phase 1/2 trial. The company has many other exciting programs.

Although reaching a market capitalization of $1 trillion would be an important milestone for Eli Lilly, investors should not focus too much on this goal. The company is incredibly innovative and should continue to deliver above-average performance long after this goal is reached. For me, the stock is an absolute buy.