Should You Buy CSL Ltd Shares at This Price?


CSL Ltd [ASX:CSL] is one of the largest stocks on the ASX. They primarily develop and sell biotherapies products. This includes vaccines and antibiotics, as well as autoimmune disorder treatments.

Not only is CSL one of the largest stocks on the ASX, it’s also one of the best performers year-to-date. The stock is up 23% in the past 12 months, to $123.50.

This morning, however, CSL fell 1.15%, to $123.07 a share, due to a dividend payment of 84 cents.

Why buying back shares is a good thing

The company reported $884.5 million in cash for the first half of FY17. A portion of this is being used to buy back their own shares.

Why would they do this? CSL believes reinvesting money in the company is the right investment at this time. Not only can they generate a return on their cash, but it improves shareholder value.

Shareholders buy stocks to make returns on capital. They want to know their earnings per share (EPS). Returns are generated through either share price appreciation or dividends.

In other words, shareholders want to know the percentage of earnings they are entitled to.

This EPS figure is affected in two ways. The first is by earnings. If earnings increase, then so does EPS. The second is the number of shares outstanding. The more shares there are, the lower the EPS.

Buying back shares reduces the number of shares outstanding on the market and increases EPS.

What now for CSL Ltd?

So does CSL’s buyback indicate a good time to buy? Maybe.

CSL improved both revenues and earnings in 2017. Net profit after tax climbed 35.97%, to $748.1 million. Basic EPS also climbed 14.1%, to $1.768 per share.

If you believe CSL can continue to grow, innovate and market new products, now might be the right time to get in. If not, put CSL on your watchlist.


Härje Ronngard,

Junior Analyst, Money Morning

PS: It’s not always easy to find growth among billion-dollar stocks. Unless they can significantly increase earnings, you’d be lucky to get double-digit returns. That’s why some investors prefer the smaller end of the market.

Small-cap stocks are a riskier investment. There is no running away from it. But they can potentially grow earnings 10-fold in a short space of time.

Small-cap specialist Sam Volkering has been on the other end of small-caps running up 1,000% or more.

So far in 2017, Sam hasn’t recommended a losing stock yet. In his advisory service, Australian Small-Cap Investigator, his top three active investments are up 304.57%, 466.04% and 1,624.49%.


Harje Ronngard

Harje Ronngard

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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