The CSL share price: Could we be nearing a change of tides?

After an awful run, are CSL shares now cheap enough to buy?

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No one can doubt that it has been an especially rough time for the CSL Limited (ASX: CSL) share price of late. It was only back in early June that CSL shares were selling above $300 each. But today, this ASX 200 healthcare share is asking just $252.61 at the time of writing.

Not only is $252.61 around 20% less than what the company was asking at the beginning of winter, but today's trading has seen CSL get dangerously close to its current 52-week low. This Monday has had CSL shares trading as low as $250.58 a share.

This low is just two cents above CSL's current 52-week low of $250.56 which we saw the company hit on Friday last week. Check that all out for yourself below:

CSL's miserable share price performance in recent months comes despite the upbeat full-year earnings report that we saw last month. As we covered at the time, CSL announced a 31% increase in revenues for the 2023 financial year to US$13.31 billion.

Net profits after tax before amortisation were also up by 20% in constant currency to US$2.86 billion, while reported net profits rose by 10% to US$2.61 billion.

This enabled CSL to increase its full-year dividends for 2023 to US$2.36 per share, which is a 6% rise over last year's payouts.

So given that CSL shares have had such an awful few months, do these sunny earnings mean the tide might be about to turn? Could we be nearing a bottom for the CSL share price?

Is the CSL share price about to bounce back?

There's little doubt that CSL is a quality company. It is one of the most dominant healthcare shares in the world, with an impressive presence in vaccine research and distribution, as well as a huge network of plasma collection facilities.

As such, I'd love to own some CSL shares within my own portfolio.

Now I don't know if CSL shares are going higher or lower from here. But I wouldn't be buying this company today for one simple reason. I think CSL shares are overvalued.

Even after the rather disastrous last few months, today the CSL share price trades at a price-to-earnings (P/E) ratio of over 35. That's a rich valuation for any blue-chip share, let alone a company worth over $120 billion.

I have no doubt that CSL will continue to grow well into the future. But to justify this kind of valuation in my eyes, CSL would need to keep banging out at least double-digit profit growth for years to come. I just don't see that happening for this company. Thus, paying more than 35 times earnings seems to be a big ask.

At some point, CSL's growth will slow down. And when this happens, I very much doubt investors will be happy to keep paying a P/E ratio of over 35 for this share.

As such, I see far more downside risk with the current CSL share price than upside potential. So I'll keep waiting on the sidelines for an even better CSL share price going forward. I might well be wrong here, and CSL could prove to be cheap at the current pricing. But I simply don't see this as a sure enough bet to put money down today.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has no position in any of the stocks mentioned. 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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