Over the past two decades, CSL Limited (ASX: CSL) has gone from strength to strength.
It has evolved from a small federal government department back in the 1900s to become a global market leader in blood plasma research and disease treatment.
CSL is now the largest company on the S&P/ASX 200 Index (ASX: XJO), with a market capitalisation of $136 billion at the time of writing.
The shareholder returns that CSL has generated over the past few decades have been astounding.
The CSL share price has risen from a split-adjusted price of 76.6 cents when the small government department first listed on the ASX back in 1994 to now be trading at $298.76.
In the last 12 months alone, CSL has seen a very impressive 50% share price increase. Here's what's driven the company's success.
World-beating business model
CSL has evolved into a highly successful global business through innovative research treatments that are protected by product patents. In addition, CSL has developed a highly efficient global production and distribution network.
The clever combination of these product patents and an efficient distribution network enables the global biotech company to command high product margins, which in turn generates very strong cash returns.
These returns are then reinvested back into the company to develop more innovative products or used to acquire more companies to gain further market scale. CSL has invested over US$3 billion in research and development over the last 5 years.
There is also the possibility that CSL's blood medicines and plasma products could play an important role in developing a treatment or vaccine for the coronavirus.
Is the CSL share price a buy?
Despite CSL's strong share price growth over the past year, I don't think it's too late to purchase shares. However, this is as long as you have a long-term investment horizon and are prepared for potential share price volatility over the next 3 to 6 months.
I believe that CSL is well-positioned to continue to deliver strong earnings growth over the next 5 years, driven by a strong new product development pipeline which I feel is likely to lead to continued strong share price growth.
Also, I believe that CSL's significant market scale, and its geographic diversity, places the company better than most to navigate through the current market challenges.
If you are looking for other investment options in the ASX healthcare and health product sectors, I suggest taking a look at Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) and Nanosonics Ltd. (ASX: NAN). I believe both of these companies have strong market differentiation and growth prospects.
