CSL Limited (ASX: CSL) shares closed on Thursday at $79.44. That's within a whisker of their all-time high price of $80.44, while valuing the company at a staggering $38 billion.
On the face of it, the share price and the market capitalisation sound like big numbers, but that doesn't mean they couldn't go higher still.
Consider these facts…
- CSL has grown its revenue from US$136 million in 1994 to US$5.5 billion in 2014. In doing so the company has gone from a small-cap to one of the top ten listed ASX stocks.
- Over the past 20 years since CSL listed the group has also expanded from holding less than 1% of the global plasma market to capturing over 20% market share today.
- As a listed entity, CSL has produced a compound annual growth in net profit of 24.4%.
- Over the past five years the dividend has increased from US70 cents per share to US$1.13 per share.
- The company has always been keenly aware of its duty to create shareholder value and allocate shareholder capital wisely.
- One way enhanced shareholder value has been achieved by the board is through repeated share buy-backs; most recently a $950 million buy-back was announced at the Annual General Meeting in October. This continues a trend of buy-backs which began in 2005 – all told CSL has repurchased approximately 23% of the total shares on issue since the first buy-back was commenced in 2005!
- Another example of sensible capital allocation can be seen in the group's Research and Development (R&D) budget. Spending has increased in the past five years from US$278 million to US$466 million. Given that the company has produced record profits it is reasonable to deduce that this massive R&D budget is effectively being spent, with CSL successfully innovating and growing profits as a result.
An efficient market with plenty more scope for growth
As I mentioned earlier, CSL is a top ten stock. Like many of the biggest and best blue-chips on the ASX, CSL is widely covered by sell-side brokers and analysed by buy-side investors. This, in theory at least, should mean the stock is efficiently priced, or in other words trades close to its fair value with all the known data factored in.
If that is the case and CSL is currently trading near fair value then it should only be a matter of time before the stock hits triple digits. Each year as the company grows its cash flows, the valuation of the stock rolls forward and over the coming years the required 25% rise in share price to send the stock into triple digits may occur.
