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Is CSL Limited back in the buy zone?

The CSL Limited (ASX: CSL) share price has come off the boil in recent times, falling from a peak of $143 to today’s price of $129. Is it back in the buy zone?

There are three things any would-be CSL investor should consider at today’s prices:

Financial position

Despite carrying a stack of debt, CSL has a strong financial position with plenty of cash flow. While higher interest rates may have an impact, the chance of the company falling into dire financial straits appears very remote. Thus, an investor’s overall downside is largely protected (the chance of losing 70%-100% of your money appears slim).

Growth prospects

CSL spends heavily on research & development and has several promising treatments in the pipeline, including one which may reduce the likelihood of heart attacks. The company appears to have a good chance of growing its profits from here, although growth will likely be lumpy due to the long lead times on its products, and competition in CSL’s core business.

Price

CSL is priced for a very strong future, with a price to earnings (P/E) ratio of 34, or an enterprise value to EBITDA (EV/EBITDA) of ~25x, both of which are lofty, but not that unusual compared to other high-quality healthcare businesses.

My view is that while CSL is a great business, there’s no need to race out and buy it right now. All of the things propelling it forwards will still be there for the foreseeable future, and its research & development pipeline are setting it up for the long term. That means I can wait for a better price.

Here are 5 companies I'd buy before CSL today:

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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