Is the CSL share price a buy?

After falling 18% in four months, is the CSL Limited (ASX: CSL) share price a buy?

I’m always willing to buy quality growth shares, particularly when they’re trading at a cheaper price.

It may be possible to compare CSL to Sydney’s house prices. Both have fallen a long way since their all-time highs, but both are still fairly expensive despite the drop.

According to estimates, it’s trading at around 32x FY19’s estimated earnings. This may not be too expensive if CSL manages to deliver another blockbuster year in FY19 and FY20. In FY18 CSL grew earnings per share (EPS) by 29% in constant currency terms.

At its full-year result CSL provided guidance that net profit after tax (NPAT) is projected to grow by 10% to 14% in FY19. Therefore, the company is currently predicting a slower year of growth.

However, it’s possible CSL will beat its guidance again. In May, CSL upgraded its FY18 guidance from the prior guidance and its FY18 result beat the May guidance.

CSL is by far the most expensive blue chip in the ASX 10, but it would have been a mistake to ignore investing in it all these years. High quality businesses can compound profit year after year, which is exactly what CSL is doing.

Don’t forget that interest rates are still very low compared to historical rates, so that can justify share prices at higher values.

The main reason why I think CSL could be a long-term buy is its impressive large research & development expenditure every year. CSL itself is investing hundreds of millions of dollars into creating the next generation of its existing products and also developing brand new products. In FY18 it spent US$702 million on R&D, it tries to spend at least 10% of revenue on R&D every year.

Foolish takeaway

I think CSL is one of the best healthcare businesses on the ASX. It would be my favourite ASX share to buy in the ASX 20 except perhaps Macquarie Group Ltd (ASX: MQG), depending on the share prices at the time. I like that they both generate most of their earnings internationally.

However, CSL is still a bit too expensive for me. I’d rather buy it with a forward price/earnings ratio in the 20s.

Motley Fool contributor Tristan Harrison has no position in any of the 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 Scott Phillips.

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