The Commonwealth Bank of Australia (ASX: CBA) share price is not a buy at today's levels, in my opinion.
CBA share price
As can be seen in the chart above, Commonwealth Bank shares have significantly outperformed the market, or S&P/ASX 200 (Index: ^AXJO) )(ASX: XJO), even before we consider the dividends it has paid.
However, while I admit it is a great company, I can't bring myself to buy it today for the following reasons:
Valuation. CBA shares are priced at a significant premium to the broader market and its peers, including Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ). In my opinion, it appears that CBA shares are priced for the best case, which leaves just the downside.
Cycle. Banks are cyclical. I don't know if the housing market will collapse, but there will come a time when house prices are not rampaging higher or a time when Australian household debt levels are not pushing record highs. Those are better environments for long-term investors to buy bank shares. For example, right now we are seeing record-low interest rates and bad debt charges on loans. That doesn't happen often.
Slower growth. Given the outlook for the Australian banking sector, I think growth will slow in the next 10 years. There are a lot of ways CBA could cut costs and grow profits modestly, but I don't think it can continue its current rate of growth. Unfortunately, investors believe otherwise.
Bonus
In 2017, I'm looking for other share ideas. Just because Commbank is the largest Australian company does not mean you have to buy its shares today. There are over 2,000 other shares on the ASX vying for a spot in your share portfolio — I'd consider them before CBA shares.
