Superstar stock: CSL Limited

This famous biotech has seen almost unparalleled growth, especially in the last decade.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

CSL Limited (ASX: CSL) is a protein science company, according to the company's current managing director Paul Perreault, but it is best known for its core business: collecting, fractionating and distributing human blood. CSL is one of Australia's most successful international companies, comparable with mining giant BHP Billiton Limited (ASX: BHP) in the sense that it truly is a world leader.

The company has been a particularly lucrative investment in the last decade or so. At the beginning of FY 2004, the share price was under $4.20, but today it sits at almost $68. That's an increase of over 1,600% in 10 years, without including dividends. One of the main reasons for this is that the company was able to continually increase its return on investment (ROI), as the chart below shows. If you know of a company that is likely to grow ROI like this over the next decade, please let me know!

Source: Morningstar

In 2013 return on investments was over 40%. By way of comparison, BHP's ROI was over 46% in 2007, but had fallen to 16.7% by 2013. Although I don't think CSL will be able to grow its ROI much more, I'm fairly confident ROI will remain well above 25% for the foreseeable future. If not every year, then certainly on average.

As CSL grows, so does its competitive advantage, because size allows the company to manage expenses better than its competitors. Pricing for CSL's products can vary from market to market, but whereas competitors sometimes shift product to the market offering the best margins, CSL can produce ample volumes to supply demand in all markets. This allows the company to build a reputation for reliability, and take advantage of all opportunities to profit, not just the best ones. As an aside, CSL is making the world a better place by supplying all markets at all times; the availability of blood products is important to healthcare systems.

In a recent conference call, the current MD explained why the company has adequate supply: "We're scaled, we have capacity and we've been growing all along," he said. The graph below depicts operating cashflow per share and capital spending per share. It demonstrates that the company has continued to invest in production capacity as cashflow has increased, and suggests that the significant capex in 2007 facilitated the subsequent cashflow growth. It's worth noting that CSL issued new shares in 2009, but has bought back many more in the years since.

Source: Morningstar

Foolish takeaway

CSL's performance is, in no small part, due to the stewardship of recently departed managing director Brian McNamee. Yet it is also significant that CSL originally stood for Commonwealth Serum Laboratories, and prior to 1991, it was a statutory authority. As a public company CSL was founded on the legacy of outstanding Australian scientists: the company has expanded since then, but it continues to perform essential services for society. CSL's blood collection centres, manufacturing plants, distributors and technical know-how will continue to generate cash for shareholders for decades to come. CSL shares may be expensive, but the business is one of the best.

Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »