The CSL Limited (ASX: CSL) share price has gone under $300 yet again after flirting with that milestone numerous times over the last three or so years.
For investors that don't know, CSL is one of the biggest businesses in Australia with a market capitalisation of $143 billion according to the ASX.
It's not exactly a household name. But, the ASX healthcare share is involved in a number of areas including developing treatments that "save and improve lives", as well as creating vaccines and collecting plasma.
The recent acquisition of Vifor has expanded its presence into iron deficiency, which can help patients with the conditions of heart failure, kidney disease, gastroenterology or inflammatory bowel disease, patient blood management and women's health.
I think one of the most important investment lessons to keep in mind is that as a company's profit grows, this should enable share price growth.
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Is the profit going to grow?
In the FY23 half-year result, the ASX healthcare share announced that its revenue had increased by 25% in constant exchange rate terms, while the underlying net profit after tax (NPATA) was $1.82 billion, an increase of 10% in constant exchange rate terms.
When the business announced its result, the company said that it's expecting that its NPATA – the underlying profit – for FY23 is expected to be between $2.7 billion to $2.8 billion in constant currency terms.
It said that the strong growth it had seen in plasma collections and its immunoglobulins franchise is "expected to continue". The launch of HEMGENIX in the US is "exciting" and that the rest of its research and development pipeline is in "great shape".
Its vaccine business, Seqirus, "continues to perform strongly" and it continues to work on the newly-acquired CSL Vifor business.
Profit growth could be supportive for the CSL share price.
Looking at the estimate on Commsec, CSL is expected to generate earnings per share (EPS) of $8.16. This could then grow by around 24% to $10.11 in FY24 and then increase another 18% in FY25 to $11.94.
So, it seems the business is predicted to grow earnings strongly from here.
Is the CSL share price a buy at these levels?
I think CSL is one of the strongest businesses on the ASX. However, it's certainly priced for success.
Using the FY23 estimate, CSL shares are valued at 36 times forward earnings. On FY25's estimate earnings, it's valued at 25 times FY25's projected profit.
Remember that interest rates have soared compared to where they were in 2019 and particularly through the COVID-19 pandemic. In theory, assets are not meant to be valued as highly when interest rates are higher.
CSL is a huge business. I'm not an expert on healthcare, but I know that it becomes harder for a company to grow when it becomes bigger and bigger. But, it helps that CSL is a global business with an expanding portfolio of products.
One of the best things about CSL is that it spends a lot on research and development. This unlocks new products and hopefully earnings. In the FY23 half-year period, it spent US$577 million on R&D, an increase of 25% year over year. If we remove R&D from the net profit, the valuation seems more reasonable.
If CSL can grow its EPS at a compound annual growth rate (CAGR) in the double digits over the rest of the decade, I think it can do well from here. I'd prefer owning CSL shares to some of the slow-growth ASX blue chip shares.
However, I wouldn't expect the next decade to deliver as much growth as the last decade.
