CSL Limited (ASX:CSL) is considered a high growth stock. However its last closing price of A$218.23 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing CSL's expected growth over the next few years.
View our latest analysis for CSL
What can we expect from CSL in the future?
Investors in CSL have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 13 analysts is certainly positive with earnings per share estimated to surge from current levels of $3.822 to $5.431 over the next three years. This results in an annual growth rate of 10.00%, on average, which signals a market-beating outlook in the upcoming years.Is CSL's share price justifiable by its earnings growth?
CSL is trading at quite a high price-to-earnings (PE) ratio of 41.59x. This tells us that CSL is overvalued compared to the AU market average ratio of 17.91x , and overvalued based on current earnings compared to the biotechs industry average of 27.35x . This multiple is a median of profitable companies of stocks internationally, operating in the Biotechs industry. I’ve decided to use a global peer group as there’s not enough companies in AU that are considered as appropriate peers, and I wanted to get a broader perspective on the regional multiple. Some peers include Monash IVF Group, Clinuvel Pharmaceuticals and .
We understand CSL seems to be overvalued based on its current earnings, compared to its industry peers. However, since CSL is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 41.59x and expected year-on-year earnings growth of 10.00% give CSL a quite high PEG ratio of 4.16x. This tells us that when we include its growth in our analysis CSL's stock can be considered overvalued , based on its fundamentals.
What this means for you:
CSL's current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you're a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are CSL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has CSL been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CSL's historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.