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Will the CSL share price hit $400 in 2020?

The CSL Limited (ASX: CSL) is close to hitting $300, could it hit $400 in 2020?

CSL has been amazing performer for shareholders over the long-term. In the past year it’s gone up 55%, over five years it’s up 225% and over the past 20 years it has been one of the best performers on the ASX.

It has been a huge success story for investors and for Australia.

If you think a share price of above $400 sounds outlandish then you may have thought the same about a $200 share price. If CSL keeps growing profit and retaining earnings then eventually it will reach those heights.

Just look at shares like Alphabet and Berkshire Hathaway in the US. Alphabet class A shares are over US$1,300 each and Berkshire Hathaway class A shares are valued at almost US$330,000 per share. They have reached that from long-term growth and profit re-investment. 

There are a number of reasons why CSL continues to grow. It invests a large amount of money into research and development to create new products. It’s this pipeline of products that opens up new revenue streams and makes sure that CSL stays ahead of competitors.

The power of compounding is a very powerful force. If a business keeps growing profit over many years at 10% or above then its shareholder return should be in the double digits too, plus the dividend, as long as the price/earnings ratio doesn’t get too frothy.

CSL’s core plasma products have reached a strong market position with competitors dropping the ball in terms of investment. 

Foolish takeaway

CSL has quite a high p/e ratio. It’s valued at 41x FY20’s estimated earnings and 36x FY21’s estimated earnings. I don’t think the CSL share price going to reach $400 over the next 13 months, unless interest rates are driven to 0%. But I do think we could see $400 over the next three or five years.

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Tristan Harrison 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 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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