Commonwealth Bank of Australia (ASX: CBA) shares are in the green today, up 0.7%.
Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed yesterday trading for $98.22. Shares are currently changing hands for $98.88.
Which brings us to our headline question.
Are CBA shares a bargain at under $100?
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What's been happening with CommBank stock in 2023?
CBA shares enjoyed a terrific start to 2023.
From the closing bell on 30 December through to the end of trade on 3 February, the big four bank saw its share price leap 8.3%, closing the day at $111.15 per share.
Then the bank ran into some macroeconomic headwinds.
Some of those headwinds came from the banking crisis that swept through the United States with the collapse of Silvergate Bank, Silicon Valley Bank and other regional banks. The crisis soon spread across to Europe, where Credit Suisse was days from collapse before its government-engineered merger with UBS.
Investors have also been concerned about the potential of a recession, both here in Australia and across much of the world. That could see an increase in bad debts and lower demand for new loans.
The combination of concerns has seen CBA shares slide 11% since 3 February.
Here's why they could be a bargain at today's prices.
CBA shares have room to run higher
CBA trades at the highest price-to-earnings (P/E) ratio of any of the big banks, at right about 17 times.
But there are good reasons for that.
CBA is Australia's biggest bank, and it also has a very solid Common Equity Tier 1 (CET1) ratio. This measures the core equity capital of a bank compared to its risk-weighted assets.
The Australian Prudential Regulation Authority (APRA) requires banks to have a minimum 10.25% CET1 ratio.
CBA handily exceeds that with a CET1 ratio of 11.4%, making it highly unlikely the bank will suffer the type of liquidity crunch and subsequent meltdown we witnessed in Europe and the US.
CBA shares also pay twice yearly fully franked dividends. The bank paid out its most recent interim dividend of $2.10 on 30 March, up 20% year on year. CommBank trades on a current trailing yield of 4.3%.
The big dividend boost came when CommBank reported some very strong half-year results.
Those included a 9% year-on-year increase in cash net profit to $5.15 billion. That was helped by a 0.18% increase in the bank's net interest margin, which reached 2.10%.
The bank did report a $586 million increase in its loan impairment expenses from the corresponding half-year period. This was largely due to weakness in the housing market, inflation pressures, and rapid rate hikes from the Reserve Bank of Australia.
All of those three forces still have the potential to drag on CBA shares in the year ahead.
But inflation is slowly retracing. We are most likely approaching the final few interest rate hikes from the RBA. And the Aussie housing market will rebound, eventually.
A global recession, further banking turmoil overseas, or ongoing weakness in the housing market all have the potential to spook investors and send CBA shares lower in the short to medium term.
Yet these may not eventuate at all.
Longer-term, I believe investors will look back at today's CBA share price of $98.88 as a real bargain.
