Now That Eli Lilly Trades Above $1,000, Is a Stock Split Finally on the Table?

Eli Lilly (NYSE: LLY) stock has soared in recent years. Part of the reason may be due to the company's broad portfolio of drugs across treatment areas, from neuroscience to cancer and dermatology. But the biggest driver of growth in earnings and stock performance has been the company's position in the weight loss drug market.

Lilly's weight loss portfolio has brought in blockbuster revenue, and thanks to the company's innovations and market demand, this is likely to continue. Analysts predict the weight loss drug market will reach nearly $100 billion by the end of the decade.

All of this has helped Lilly stock reach beyond $1,000. At this level, is a stock split finally on the table? Let's find out.

Why launch a stock split?

So, first of all, why would Eli Lilly want to launch a stock split? Companies generally execute such an operation after the stock price has soared to levels that may make it difficult for some investors to access. This could be several hundred dollars, but a key threshold often is $1,000. The level has even been known to represent a psychological barrier for some investors, as they see the stock as expensive even if its valuation looks reasonable. As for investors with a limited budget, they may consider fractional shares, but these aren't offered by every brokerage.

All of this means certain investors may be left out when a stock approaches or surpasses $1,000. A stock split offers companies an easy solution to the problem. By distributing more shares to current shareholders, the company maintains its market value, but each individual share is worth less. The value of each share is determined by the ratio of the split. So, for example, a 10-for-1 stock split allows a company trading at $1,000 per share to lower its stock price to $100 -- by giving shareholders nine additional shares for every one they already own.

Lilly has completed four stock splits in the past, so we could consider that the company is amenable to such an operation. Each of Lilly's operations was a 2-for-1 stock split. But, it's important to note that the most recent of its stock splits happened almost 30 years ago, back in 1997. Since that time, Lilly's leadership has changed -- more than once -- and it's very possible that strategy is quite different. So we can't say Lilly will launch a split since it's done so before.

A wise strategic move

Still, a stock split could be a wise strategic move for the pharma company right now. Such an operation would do the job of making the stock more accessible for some, it could also attract investors who don't like the $1,000+ price tag, and it would deliver an important message: that management is confident about Lilly's future and thinks the stock could soar once again from a new, lower price.

It's important to note that a stock split doesn't represent a catalyst for stock performance. So if Lilly announces such a move, this isn't a reason for the stock to climb. But an operation could be favorable over time simply because it may broaden the investor base.

Could a stock split finally be on the table with the stock trading above the level of $1,000 right now? Lilly is set to report quarterly earnings on Aug. 5, and I wouldn't be surprised to see the company announce a stock split. The stock has advanced nearly 35% from the end of April through July 17, and at its highest, it surpassed $1,200.

At the same time, Lilly has reached an exciting moment in its story as a weight loss drug leader. The company recently launched Foundayo, an oral weight loss drug. And Lilly's extra-powerful weight loss candidate, retatrutide, delivered strong results in a phase 3 trial. The combination of these exciting happenings in Lilly's weight loss portfolio and the potential of a stock split announcement makes Lilly a stock to watch in the coming weeks.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.