I've been eagerly watching this week as the share price of blood-product company CSL Limited (ASX: CSL) continues to drift around $100 per share.
In my view CSL is one of the most appealing stalwart companies listed on the ASX for its competitive position, reputation, efficiency and strong returns to shareholder equity.
In fact, these are all the same reasons I would avoid owning shares in big insurer QBE Insurance Group Ltd (ASX: QBE) right now.
Earlier this week fellow Motley Fool contributor Sean O'Neill noted the company's share price run may have come to a bump. Here's why I think that's a great opportunity.
Compounding idol
The golden rule of investment disclosures is that "past performance is no indicator of future returns". But past performance does give us valuable insight into management capability.
CSL's past returns for investors have been spectacular as it grew from a young company into a mature blue-chip. In the company's recent Annual Report, CSL boasted of compounded annual returns of 27.6% since 1994, meaning a $1,000 invested on listing would have been worth $217,039 at 30 June 2016. A spectacular result.
With a market capitalisation of $46 billion today, growth won't be as liberal going forward, but importantly for long-term investors CSL continues to reinvest astutely in ways which support the company's existing competencies or directly add value to shareholders.
I cannot emphasise the importance of this enough. It means that rather than throwing around investor money willy-nilly for the sake of growth, investment is targeted, relevant and creates, rather than destroys, long-term value. We can see this in recent investment decisions:
- Ongoing investment in research and development which targets the longevity of the existing core business;
- Similarly, the investment in opening 22 new plasma collections centres which secures existing operations;
- The acquisition and integration of influenza vaccine company Novartis (now the Seqirus business) leverages bioCSL's existing influenza competencies and manufacturing abilities.
The company is not without its risks: product quality and brand reputation are fundamental to CSL's continuing success while, as Sean mentioned, competition from pharmaceutical and biotech companies has been sneaking up in one of the haemophilia products it sells in particular.
But I believe the direction the company is taking with its focused investment decisions today, aided by organic growth in market size, will continue to see growth compound handsomely.
