With Commonwealth Bank of Australia's (ASX: CBA) share price still languishing below the $80 mark, and offering a 5.3% fully franked dividend yield, there's little doubt that the bank is on the radar of many Australian investors. But is this an opportunity to buy?
What's happened to the bank's share price?
Commonwealth Bank's shares soared to an adjusted high of $96.17 earlier this year, sparking much speculation that it would soon exceed $100 per share. Since then however, the bank has come under intense selling pressure with each of the Big Four plunging into official 'bear market' territory (defined as a fall of 20% or more from the peak).
Interestingly, Commonwealth Bank is the only one of the majors to have emerged from the bear market so far. It's trading 17.5% below its peak, while Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are still trading 20%, 24.3% and 26.1% below their peaks, respectively.
The falls were largely justifiable. Firstly, the shares of the banks have become overpriced compared to historical standards, while their dividend yields have also fallen as a result. Then, there's the issue of slowing earnings growth in the face of tougher competition, as well as tougher regulations introduced as a result of booming house prices and concerns over lending practices.
These regulations required the banks to raise more capital, which had the effect of diluting shareholder ownership and will likely impact future returns on equity. There's a chance dividend growth could slow as well if the banks are forced to keep more cash rather than hand it out to shareholders, which has potentially dampened the market's mood towards the Big Four banks.
Is it a buying opportunity?
The banks have been strong performers for investors historically, and anyone would like to believe that will be the same in the years to come.
However, investors shouldn't rely on past results for indications of future performance. The banks might be trading at a discount to their recent highs but they're still not cheap and with strong headwinds still facing the industry, it's my opinion that investors would still be better off looking elsewhere for superior opportunities.
