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Is the CSL share price a buy?

Is the CSL Limited (ASX: CSL) share price a buy? It could be after falling around 15% since start of September 2018.

CSL is Australia’s largest healthcare business with a market capitalisation of nearly $90 billion. It’s a biotechnology manufacturer that researches, develops, and markets products to treat and prevent rare and serious diseases.

It has been perhaps the best ASX blue chip over the past five years with the share price rising by 178%, not including the dividends.

The FY18 result was pretty impressive. In constant currency terms, revenue grew by 11% to US$7.9 billion, earnings per share (EPS) increased by 29% to US$3.82 and the total full year dividend grew by 26% to US$1.72.

Despite the great profit growth over the past few years, the price/earnings ratio has been growing even quicker, at least to early September 2018. A growing p/e ratio is only sustainable if the profit growth rate is increasing too.

Some investors now think it’s trading too expensively, at around 33x FY19’s estimated earnings.

Undoubtedly CSL is one of the highest-quality businesses in the ASX20. It invests heavily in research & development to create the next products that will help people and drive profit higher. This makes it a good long-term investment because it is investing for the long-term too.

But in the FY18 report market release, CSL management guided that profit would grow by 10% to 14% in FY19 to between US$1.88 billion to US$1.95 billion.

Sometimes companies don’t deliver on their short-term guidance, like we’ve seen with Costa Group Holdings Ltd (ASX: CGC) recently. Which can be painful until it recovers later.

CSL’s core plasma business is predicted to grow at high single digits annually for the next several years. This is pleasing organic growth, but I’m not sure it justifies a price/earnings ratio of above 30. It will depend how successful its new product pipeline is.

Foolish takeaway

I wish I could go back five years, ten years or twenty years to invest in CSL, I do think it’s one of the best shares to own in the ASX20, but today may not be the best time to buy its shares. The price you pay is the key to achieving market-beating returns in the short-term and long-term.

Instead, these three ASX blue chips could be priced right for a good long-term buy today.

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Motley Fool contributor Tristan Harrison owns shares of COSTA GRP FPO. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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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