CSL Ltd (ASX: CSL) shares have soared 27% since 30 October 2023, significantly outperforming the S&P/ASX 200 Index (ASX: XJO) which has only gone up by 11% in the same time period.
The ASX healthcare giant's shares have struggled since the onset of the COVID-19 pandemic, as we can see on the chart above.
This company is undoubtedly one of the ASX's best success stories. It has grown from a decently-sized business when it listed into a company with a market capitalisation of $140 billion.
CSL has invested many billions into research and development to create new healthcare treatments and new products, which can then unlock larger earnings. But its historic success doesn't mean the future performance will be great.
Is it overpriced?
It's possible that a company's share price can run ahead of what's a fair price. One expert certainly seems to think the business has gone too far.
Writing on The Bull, Braden Gardiner from Tradethestructure called CSL shares a sell. He pointed out CSL has guided that revenue is expected to grow by between 9% to 11% in constant currency terms compared to FY23.
Gardiner wrote:
In my view, the [CSL] share price is trading in extended territory, which may trigger some profit taking. Investors may want to consider cashing in some gains.
He had that opinion when the CSL share price was trading at $283.97. It's even higher now, with the share price currently at $293.34, so he might think the business is even more of a sell than before.
My take on the CSL share price
The company is priced quite highly, on a price/earnings (P/E) ratio basis. According to Commsec, the business is valued at 31 times FY24's estimated earnings. Considering how large the business is, that's a lofty valuation and assumes a fair bit of profit growth in the coming years.
It's facing increased competition for some of its product base, though its R&D may help it stay ahead of the game in most areas of its product range.
I'm not an expert on biotechnology, and I'd guess many other Aussies aren't either. That makes it harder to evaluate the strength of its economic moat, and how damaging a competitor's progress might be.
This is the sort of business that could keep growing for many years into the future. Ageing demographics are a useful tailwind for healthcare demand. Governments and individuals are generally willing to spend on healthcare because of the positive effects it can have, so it's quite a defensive business in my eyes.
I'm not excited about the company at the current CSL share price, but it's appealing that the business is expected to grow its profit in FY24, FY25 and FY26, according to Commsec. It's valued at 24 times FY26's estimated earnings. I'd prefer to buy at a cheaper price though, if we're talking about investing in the next 12 months.
