The Commonwealth Bank of Australia (ASX: CBA) share price is a little too high for me to buy in today.
CBA share price
As can be seen above, CBA shares have proven to be a wonderful investment, returning more than double the broader Australian market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), over the long run.
Indeed, CBA has proven to be well-run, extremely profitable and a consistent dividend payer.
However, although I believe CBA could be a decent long-term investment in the future, there are three reasons I'm not buying in today.
- Valuation. At today's prices, CBA shares are priced to perfection. In my opinion, the company is priced for a 'best case' scenario in terms of profit growth. But I'm not alone in calling it expensive, the consensus rating amongst the 16 analysts surveyed by The Wall Street Journal is a 'hold' with an $83.91 price target (3% below today's share price).
- Risks. Forecasts of falling house prices have gone on and on like a broken record. However, house prices will not always continue upwards. Given the cyclical nature of banking, I believe the risks are to the downside.
- Slowing growth. Ultimately, valuation plays a big part in the investment process for blue chips because unless they are purchased at bargain prices, investors lock themselves into mediocre returns. Specifically, I do not believe CBA's profits will grow at the same pace as they have in the past. That means investors should demand a healthy margin of safety.
Foolish Takeaway
Banks are great businesses to own since they are regulated so much that they must make a profit. And amongst Australia's big four banks, CBA is a clear leader with higher returns on capital and the greatest market share of key products like mortgages.
Unfortunately, in my opinion, CBA shares are not a buy today. While I would not label them an outright 'sell', if an investor held more than 30% of their entire investment portfolio in banks and financials I'd say that is too much and it would be wise to de-risk the portfolio by selling some of their holdings.
