The CSL Limited (ASX: CSL) share price continued to receive the cold shoulder on Monday.
Without any news flowing directly from the company, one can only guess why investors carved further into the biotech giant's share price.
At the final bell, shares in the vaccine and blood plasma business are down 1.5% to $230.65. However, the share price laceration went as deep as $228.65 in the early trading hours.
The company's shares are now 26% below their 52-week high set in February.
With its lineage of greatness, could the malnourished CSL share price be a 'greedy when fearful' scenario?
Image source: Getty Images
Looking beyond the noise
The CSL share price has been in an unrelenting freefall since informing investors of an increased foreign currency headwind in FY23. Since then, the treatment developer has failed to catch a break, facing multiple pressures.
In August, CSL shares rallied on a better-than-expected set of full-year figures. Still, the celebrations were short-lived as unwelcomed developments were soon to arrive. For example, findings indicate the weight-loss drug Ozempic may have applications in dealing with chronic kidney disease — an area CSL is active in following its acquisition of Vifor.
Furthermore, CSL's margins have not been as impressive as prior years. Increasing costs associated with sourcing plasma for the company's treatments have eaten away at its net profit after tax (NPAT). In the latest financial year, revenues soared 26%, yet earnings declined nearly 3%.
Generally, the market would perhaps be somewhat forgiving for a slight earnings decline. Unfortunately, forgiveness is in shorter supply when your company trades on a relatively rich price-to-earnings (P/E) ratio of more than 35 times.
In response, the market has reevaluated the premium on which CSL shares should trade. The result… a $100 billion-plus company whipping from above $300 per share to roughly $230.
However, some analysts now consider the CSL share price an opportunity. As my colleague James Mickleboro noted, both Citi and Morgans are targeting a share price above $320. These analysts are confident that CSL can reduce costs and maintain double-digit earnings growth in the years ahead.
CSL shares have also caught the attention of Sydney-based fund manager Sage Capital. At the annual Calcutta stock-picking competition, Sage Capital named CSL as its top pick for 2024.
How do CSL shares compare to others?
Although 35 times earnings appears expensive compared to the ~18 times that the S&P/ASX 200 Index (ASX: XJO) trades on, it is mostly on par with the biotech industry. For example, the much larger AbbVie Inc (NYSE: ABBV) commands a P/E of approximately 38 times earnings.
At the same time, this isn't a conclusive sign that CSL shares are cheap. It may turn out that the entire biotech industry's average multiple could fall.
Either way, CSL will undoubtedly need to deliver solid profit growth to stem the bleeding moving forward.
