High-flying aircraft are occasionally subject to turbulence. Same story for stocks. We saw this happen Eli Lilly (NYSE: LLY) This week.

Lilly reported its third-quarter results on Wednesday. Investors didn’t like what they heard. Big pharma stock initially fell close to 15% after the market opened on Thursday before turning back a bit.

Despite this partial recovery, Lilly’s share price remains approximately 13% below the peak set in late August. Some investors may be tempted to sell. I think this is a temptation to avoid. Here’s why Eli Lilly is a no-brainer stock to buy on the dip.

Concerns about Lilly’s third-quarter update are overblown

It’s no surprise that Lilly’s shares fell after its third-quarter update. The drugmaker badly missed Wall Street’s revenue and earnings estimates. Lilly cut its full-year earnings forecast. But when I dug into the rest of the story, I became convinced that initial concerns about Lilly’s third-quarter update were overblown.

Lilly’s revenue and earnings loss in Q3 was primarily due to lower-than-expected sales of Mounjaro and Zepbound. Should investors be concerned about weakness in the company’s key growth areas? Not exactly.

Wholesalers reduced inventories of type 2 diabetes and obesity drugs in the third quarter, CFO Lucas Montarce disclosed in Lilly’s third-quarter earnings report. But this is just a temporary timing issue. Montarce said demand for Mounjaro and Zepbound “is strong and continues to grow.” Lilly CEO David Ricks noted that U.S. prescription volume for drugs increased 25% from the second quarter to the third quarter.

What about lower full-year guidance? Lilly lowered its adjusted earnings per share forecast to between $16.10 and $16.60, down $3.08 per share in the middle of the range to between $13.02 and $13.52. However, this figure exactly matches the additional research and development expenses the company incurred in Q3, mainly related to its acquisition of Morphic Holding. Without this acquisition, Lilly almost certainly would not have changed direction.

Lilly’s coming-of-age story remains intact

I think Lilly’s coming-of-age story remains intact. It’s especially important to remember that Zepbound remains in the early stages of its launch. Ricks noted on the third-quarter call that Lilly has not yet run a direct-to-consumer advertising campaign for the drug, but hinted that it could be on the way. Montarce said Mounjaro’s new international launches should contribute to growth in Q4.

But Mounjaro and Zepbound are not the only drivers of Lilly’s growth. Sales of breast cancer drug Verzenio rose 32% year over year to $1.37 billion in the third quarter. Meanwhile, autoimmune disease drug Taltz continued to gain strong momentum, with sales up 18% to nearly $880 million. Even Lilly’s insulin product, Humalog, which was first approved by the U.S. Food and Drug Administration (FDA) in 1996, saw year-over-year sales growth of 35%.

The company has two rising stars that could soon increase its revenue significantly. The FDA approved Kisunla for the treatment of Alzheimer’s disease in July and Ebglyss for the treatment of atopic dermatitis in September. Has the potential to be both Kisunla and Ebglyss blockbuster drugs.

Investors shouldn’t overlook Lilly’s pipeline, either. I’m particularly keeping my eyes on the company’s oral obesity drug, or forglipron, which is currently in phase 2 testing. Ricks noted that Lilly is a leader in oral obesity drug development. He noted that oral products are probably the best solution for most of the “potential 1 billion customers on the planet.”

Ricks thinks that if clinical studies go well, Lilly could submit orforgliprone for approval and bring the drug to market in less than two years.

valuation question

The biggest objection to buying Lilly stock is probably its valuation. Shares of the big pharma company are trading at about 37.5 times forward earnings. Does this high ratio disqualify Lilly as a no-brainer stock to buy on the dip? No.

Investors need to look further ahead than one year, which is the time frame used for Lilly’s forward price-to-earnings ratio. Accordingly LSEGLilly’s price-earnings-growth (PEG) ratio five-year earnings estimates are 0.80. Any PEG ratio below 1.0 reflects an attractive valuation.

Lilly offers strong growth prospects at a good price, and the recent sell-off in the stock presents a great buying opportunity for long-term investors in my view.

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Keith Speights It has no position in any of the stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a feature disclosure policy.