Praise be! The CSL Limited (ASX: CSL) share price is at a new all-time high – its first for 2020 so far.
CSL shares are trading 2.42% higher at $298.14 at the time of writing. The new all-time high was booked shortly after market open at $296.81 a share. We might even see the psychologically dazzling level of $300 a share before the day is through.
It was always going to happen. It seems CSL shares spent 2019 printing fresh new all-time highs every few weeks or so – so why should 2020 be any different?
But here's why I think CSL shareholders should start becoming wary as we enter the new year.
Are CSL shares overvalued?
Let's go back to some fundamentals. In last year's financial results, CSL reported revenue growth of 11% to US$8.54 billion and profit growth of 17% to US$1.92 billion.
Those are strong numbers to be sure. But CSL now trades on a price-to-earnings (P/E) multiple of 48.22 times earnings. Is revenue growth of 11% really strong enough to justify a P/E ratio that's more than double that of the market average?
A lot of macro-trends have been going CSL's way as well. Our dollar has spent the last 2 years or so falling in value against the US dollar. Since CSL reports in US dollars, this has helped boost its profitability back home.
The company has also been benefitting from a supply squeeze of immunoglobulins – one of its core products. Since CSL is one of the largest suppliers on the market, it has been able to take strong advantage of this tightness with higher prices. But its hard to say those kind of market conditions will last forever.
All in all, I see a lot of tailwinds that could reverse anytime for this company.
Suppose the immunoglobulin market changes, or our dollar starts rising against the greenback… well, the story could change very quickly. That's why I think CSL shareholders should be careful in 2020.
Foolish takeaway
Don't get me wrong, CSL is a fantastic company and one I would love to own. But I'm not happy paying 48 times earnings for it – especially considering the risks I've just outlined and its revenue growth of 11% last year. Instead, I'm hoping for the mythical 'buy-the-dip' opportunity on this one. It looks as though I'll be waiting a while though!
