CSL Limited (ASX: CSL) is one of the strongest trending shares in the S&P/ASX 200 (INDEXASX: XJO). The CSL share price is truly a gift that keeps on giving to short-term traders and long term investors alike. Since 2010, the share price has rarely had any sharp declines and only modest pullbacks of less than 20%. With the way that CSL is looking, here is why it could be the ‘forever’ stock fit for any investors portfolio.
Record low interest rates
The global record low interest rate environment has been a key driver for the way companies are valued. You could argue that back in the day when interest rates were greater than 5%, that a price-to-earnings ratio of 15 could be more expensive than today’s price-to-earnings ratio of 20. Low interest rates look like they are here to stay, which will continue to buoy value and growth shares alike.
Growth and industry tailwinds
Consistency has been the name of the game for CSL since its inception. There aren’t many companies out there that have such an extensive and reliable track record. CSL’s 10-year compound annual growth rate (CAGR) for sales is approximately 14.6%.
CSL derives its revenues across a few key therapeutic markets, with FY19 contributions broken down below:
- Immunoglobulins: $3,543 million or 40.5%
- Albumin: $1,018 million or 11.6%
- Haemophilia: $1,051 million or 12%
- Specialty: $1,572 million or 18%
- Influenza: $1,196 million or 13.7%
These therapeutic markets are expected to grow modestly in the medium to long term. For example, the global immunoglobulin market was valued at US$9,972.9 million in 2017 and is expected to reach $16,694,7 million by 2025 (a CAGR of 6.6% from 2018 to 2025). Likewise, the global influenza market was valued at nearly US$5.6 billion in 2017 and is expected to reach nearly US$6.5 billion in 2022.
The steady growth of these markets shows the continued global need for CSL’s crucial innovative medicines that saves lives, protects public health and helps people with life-threatening medical conditions live full lives. CSL clearly has the capacity to continue growing its revenue and the market will welcome further innovation and solutions.
If CSL can maintain a growth range near its 10-year CAGR of 14.6%, it is more than likely that its phenomenal share price trend can continue into the next decade. In FY20, the company anticipates net profit after tax growth between 7–10% and revenue growth of approximately 6% (subject to exchange rates). These rates include earnings headwinds, including a one-off cost transitioning into a direct distributor model in China.
CSL continues to exhibit strong growth capabilities and earnings growth with the support of industry tailwinds. The sky is the limit for CSL and minor pullbacks could be an opportunity for both short and long-term investors to enter.
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Lina Lim 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.