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CSL's share price has increased 47% this year, and more than 8-fold since we most recently recommended members Buy back in 2020. With a forward price-earnings ratio of 40, CSL looks expensive on traditional valuation metrics - but to call it overpriced is even riskier.
The maker of blood products and antibody treatments is growing rapidly and net profit rose 17% last year. What's more, its CSL-112 cholesterol drug recently entered Phase III clinical trials, which could add materially to CSL's valuation if successful. And, as we explained in November, CSL's competitive advantages have never been stronger. As a result, CSL made it on to our ‘never sell list’ in October (although, to clarify, this still allows for prudent portfolio weighting-related sales).
On the other hand, expectations for the business are high and there's always the threat of new treatments rendering CSL's therapies obsolete or a product recall damaging its reputation. The range of potential outcomes is always wide for drug makers.
It's rare when value investors get in relatively early on such a high-quality, fast-growing business, so the last thing we want to do is get out too quickly when the business could continue growing at this rate for many years to come, if not decades. We'd hate to be remembered as the guy who sold Manhattan for a handful of beads.
CSL operates in a rapidly evolving industry and it has one of the strongest research pipelines of any healthcare company. Who knows what unexpected successes lie ahead. We're prepared to own high-quality businesses for very long periods, and for that reason we wouldn't sell out completely at today's price despite the high valuation.
We're increasing the price guide but recommend you take profits if and as the share price rises to ensure you maintain a portfolio weighting below 7%. CSL is one of Australia's best businesses and we're sticking with HOLD.