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Why the CSL share price rose 10% in November

Shareholders of CSL Limited (ASX: CSL) should be used to a solid monthly gain by now. After all, CSL shares are up 55% YTD, and 233% over the past 5 years.

But as CSL shares started November asking around $258.65 and ended the month with a $286.10 price tag, shareholders can bank another 10.6% gain to add to their collection.

Why did CSL shares race ahead last month?

Momentum in the ASX’s third largest stock has been building ever since the healthcare giant released its FY19 results in August, in which it reported revenue growth of 11% and profit growth of 17%.

For such a large company, these numbers are very encouraging and demonstrate that CSL’s management remain at the top of their game.

Being in the healthcare sector, CSL can also enjoy all of the benefits that come with it – such as government support, a non-cyclical earnings base and the ever-present ‘ageing population’ tailwind. Investors know all this, and combined with CSL’s phenomenal growth history, are clearly prepared to assign a high valuation to this company’s cash flows.

Of course, CSL’s success has also been buoyed by a rising market overall. Low interest rates give a dividend growth stock like CSL even more appeal.

It’s no surprise then that brokers are re-rating the stock ever higher. Just this week, analysts from Macquarie Group Ltd (ASX: MQG) kept an ‘outperform’ rating and slapped a $300 price target on the company.

All of these factors (in my opinion) were behind the CSL outperformance in November.

Is CSL a buy today?

Well, that’s the $286 question. On yesterday’s closing price, CSL shares are trading at nearly 46 times the company’s earnings. Seeing as the current market average is around 19, it’s fairly hard to describe CSL as anything but expensive.

But CSL is one of those companies that almost always trades at a premium and yet never seems to fail to rise. So yes, CSL is expensive, but you’re also paying for quality, so maybe its worth it.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. 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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