If you thought CSL Limited (ASX:CSL) shares were ridiculously expensive before results, they are off the charts now


The CSL Limited (ASX:CSL) share price has jumped 16 per cent higher since the beginning of August, now trading at almost $230.

For a company with a market capitalisation of over $100 billion, the 75 per cent rise in CSL shares over the past 12 months is astonishing.

CSL shares are by far the biggest gainer of in the ASX 20 index over that period, easily beating out the impressive 50 per cent rise in the Macquarie Group Ltd (ASX:MQG) share price, and the 29 per cent rise in the Woodside Petroleum Limited (ASX:WPL) share price.

CSL was the largest position in the top performing Bennelong Concentrated Australian Equities Fund. In its June update, the fund said it continues to believe CSL has better than expected earnings prospects over the foreseeable future.

That faith looked to be rewarded when CSL reported a 29 per cent jump in profits for the year ending June 30th 2018, and increased its dividend by 26 per cent.

Looking ahead, CEO Paul Perreault said CSL expected profits to grow by 10-14 per cent in FY19.

For a $100 billion company, 45x looks ridiculously expensive

That’s a relatively modest growth rate for a company trading on a trailing price to earnings ratio (P/E) of around 45 times earnings.

CSL has a recent history of beating expectations, and with it also benefitting from a sharply lower Aussie dollar, given the elevated valuation, clearly investors are banking on it growing faster than the company itself is currently forecasting.

One fund manager content to watch this one from the sidelines is Martin Conlon and the  Schroder Equity Opportunities Fund.

In its June 2018 report, the fund said it had a zero weight to CSL. The fund it admires CSL as an efficient and highly innovative developer and manufacturer of plasma derived products, it does not justify paying a ridiculous price for the business.

If the price was ridiculous then, given the further rise in the CSL share price, the valuation would be off the charts now.

Still, momentum can carry share prices higher than would otherwise seem rational. And if you are a large cap fund manager looking for growth stocks, there aren’t too many options in the ASX 20 index.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au