Is the CBA share price a good value buy in October?

The bank's share price has turned off its 52-week lows this month.

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Key points

  • CBA shares have rallied off lows so far this month
  • The question now turns to whether there is compelling value in the bank share
  • The CBA share price is down 4% in the past 12 months

The Commonwealth Bank of Australia (ASX: CBA) share price is up almost 2% at $99.98 in Tuesday afternoon trading.

It's been a fairly difficult 12 months for CBA shareholders who have watched their positions trade sideways for much of this time.

Now, with the share rebounding from lows and rallying 6% in the past month, the question is whether the CBA share price represents compelling value or not.

Is CBA good value right now?

One key point is that price doesn't equal value. Just because the CBA share price has traded down in recent months, or rallied in October, doesn't necessarily reflect measures of value. We have to dig deeper than that.

Firstly, as seen on the chart below, the CBA share price has tracked the Vaneck MSCI International Value ETF (ASX: VLUE) – a proxy for value performance – closely this last year.

However, it has broken away this month, which raises some further questions. Let's continue digging.

TradingView Chart

Corporate value is measured in terms of earnings and return on invested capital. While there are various calculations to derive this, they can be measured in shorthand using recognised multiples or ratios.

Multiples such as price-to-earnings (P/E), price-to-cash flow (P/CF), and price-to-book (P/B) ratios are also useful in making comparisons in the banking space.

As seen in the table below, CBA is trading above its banking industry peers at a P/E of 18.12 times and is also the most 'expensive' when looking at its P/B of 2.29 times.

Company NameP/EROE %P/BNet Margin %P/CF
Commonwealth Bank of Australia18.1212.8%2.2941.5%15.25
Australia and New Zealand Banking Group Ltd11.4010.9%1.1635.2%10.96
National Australia Bank Ltd15.3811.1%1.6240.2%14.39
Westpac Banking Corp17.107.4%1.1726.1%14.65
Bendigo and Adelaide Bank Ltd11.067.5%0.7230.0%10.03
Bank of Queensland Ltd13.296.6%0.7425.9%9.27
Macquarie Group Ltd12.5318.0%1.9935.9%13.61
Median 13.2911%1.1735%13.61
Data taken from company filings.

It also trades above the peer group on a P/CF ratio of 15.25 times, versus the median 13.6 times.

Despite these shortcomings, the bank is the most profitable in terms of earnings. It secured a net profit margin of 41.5% and delivered a return on equity (ROE) of 12.8% from its FY22 results.

However, it's worth noting that not all banks within this list have reported their annual results for FY22.

So, compared to its peers, relative value in the CBA share price is mixed at present. But what about with respect to forecasts?

What do the brokers say?

It isn't so rosy for the bank in this department either, as seen below.

Recommendation18-Jul-202218-Aug-202218-Sep-2022Current
Buy1000
Hold6679
Sell91097
Consensus price target [$]92.2191.2990.0092.91

No brokers currently rate the share a buy while nine say it's a hold and seven rate the share a sell, according to Refinitiv Eikon data.

This is largely unchanged from previous months, however, the consensus price target of $92.91 has crept up since then.

In spite of this, the valuation is still around 7% below the current market price for CBA shares and, hence, doesn't represent value.

Alas, from this rudimentary analysis, it's difficult to find value in the CBA share price.

While there is some upside in earnings and profitability from the bank, other measures suggest it's a contrarian play.

The Commonwealth Bank share price is down 4% in the past 12 months.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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