It’s hard to believe that the CSL Limited (ASX: CSL) share price is almost exactly where it started the year, at $275 per share. Well, at least it was until this morning’s open which has seen the CSL share price climb 0.78% to trade at $277.89 at the time of writing.
Source: Google Finance
A global health crisis should be CSL’s time to shine! The problem is that CSL’s products rely heavily on donated plasma as a key ingredient. This plasma comes from donors in the United States and Europe where coronavirus related shutdowns have created supply issues.
Plasma is used for CSL’s immunoglobulin and albumin business lines which in the 2019 financial year made up 56% of the company’s revenue. It’s no surprise then that analysts are forecasting a decline in revenue in the year ahead.
But looking at the company’s long-term prospects, I think there are a lot of attractive reasons to own shares in the company today.
CSL could be one of the world’s best companies
I think CSL could be one of the world’s best companies because of its strong flywheel effect. A flywheel is a combination of processes that feed off each other and can rapidly grow a business over time.
CSL’s focus on new, innovative treatments and reinvesting profits has helped the company to compound returns rapidly over the last nine years.
CSL has a wide intangible asset moat
You can give your wealth a serious boost by buying and holding shares in companies that have strong economic moats, or competitive advantages. Economic moats work to protect the company from the attack of competitors. In my view CSL has built a wide intangible asset moat through its patented rights to produce and sell lifesaving medicines and immunotherapies. Although these rights can be challenged and have a finite life, CSL’s diverse portfolio of products makes the moat more robust, which bodes well for the CSL share price.
CSL has a monster 42% return on equity
One of the benefits of being a top dog with a large competitive moat is that you can produce huge returns on investor equity. In fact, CSL’s monster 42% return on equity (ROE) is far above the 21% sector average for pharmaceuticals according to data from valuation guru Aswath Damodaran.
Is the CSL share price a buy today?
The slowdown in plasma collections will certainly have a negative impact on the short-term growth of the CSL share price. However, I still think that CSL will be a great performer in the years to come. Perhaps it is finally time for me to add the company to my own long-term portfolio.
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More reading
- Will the CSL share price crack $300 in August?
- 3 unloved ASX growth shares that could make you rich
- 3 junior ASX healthcare shares with explosive growth potential
- ASX 200 Weekly Wrap: ASX has week of high volatility
- Should fixed-interest investments be part of your ASX share portfolio?
Regan Pearson has no position in any of the stocks mentioned.
You can follow him on Twitter @Regan_Invests.
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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