After two years of respectable, albeit unspectacular, results for a company of its size, CSL Limited (ASX: CSL) recently shocked the market when it announced a profit upgrade that would see full-year profit growth come in between 18% and 20% higher than 2016, compared to earlier forecasts of 11% growth.
It was no surprise to see shares jump 12% on the news, although the tougher challenge for investors will be determining if the company is good value right now.
As I've written previously, CSL has a long pipeline of promising therapies in development, and the company's heavy expenditure on Research & Development (R&D) should see it able to generate at least some growth for years into the future. CSL also continues to buy back shares, which will increase Earnings Per Share in a modest way.
Without running a complicated valuation methodology, a quick way to think about CSL's price tag is this:
You are paying a high price up front for a company with a long-term future.
The only way to get a better deal is to either get a better price, or hold your shares for a long time. Due to its research pipeline and share buybacks, CSL's future is easier to envision than many other companies like BHP Billiton Limited (ASX: BHP).
What will the price of iron ore be in 10 years? I haven't got a clue. Investors have a better than average chance of predicting the future with CSL, not least due to that company's publication of its trial results along the way.
That's not to say that CSL is a sure winner. However, there is a good chance that the company will still be able to research new treatments in 10 years' time, meaning that the longer investors stick around, the better their chance of having a winning investment.
Investors with a 2-3 year timeframe are unlikely to win big on CSL at today's prices. Those that plan to stick around for 5 years or longer, however, could consider buying shares in CSL today.
