Is the CSL Limited (ASX: CSL) share price going to reach $400 in 2020?
It's definitely possible. Over the past year the CSL share price has gone up by 78% over the past year. Reaching a share price of $400 would only take a rise of 18.9% over the rest of this year.
Investors have been searching for growth in an investment world where most other ASX businesses are not going anywhere. The profit of a share like Telstra Corporation Ltd (ASX: TLS) is going backwards. The profit of National Australia Bank Ltd (ASX: NAB) is essentially flat.
CSL keeps delivering growth result after result, and market buying is making sure that CSL remains a good market performer. In the recent half-year report CSL announced constant current net profit growth of 11% to US$1.25 billion. FY20 net profit is expected to be in the range of US$2.11 billion to US$2.17 billion which would be growth of 10% to 13% over FY19.
It's impressive how CSL keeps going profit, but a lot of the share price rise is down to the healthcare giant becoming more expensive, rather than its profit growth keeping up with investor hype. Even with more growth expected in FY21, CSL is now trading at 40x FY21's estimated earnings.
If you think about it in PEG ratio terms, the price/earnings ratio compared to the growth rate, CSL looks expensive. A PEG ratio of 1 or less is good value, but CSL's PEG ratio is much higher than that.
Growth is an important factor in valuation. Buying volumes of shares is a factor in share price movements. But the p/e ratio of a share can't just keep going higher and higher forever. We've seen other highly-priced growth shares like Altium Limited (ASX: ALU) and WiseTech Global Ltd (ASX: WTC) fall back because the growth expectations were too high.
Foolish takeaway
CSL is probably the highest-quality company within the ASX20, but it doesn't strike me as good value now. If the COVID-19 keeps going and turns into a global problem, maybe it will be called the global coronavirus/COVID crisis (GCC), then I think it will be hard for CSL to reach $400 this year.
There will be a time when the CSL share price dips, which then could be the right time to buy, but not today in my opinion.
