Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

| More on:
A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Commonwealth Bank of Australia (ASX: CBA) share price has done very well for shareholders – it's up 4% in 2024 to date and it has gone up 18% in the last six months. The S&P/ASX 200 Index (ASX: XJO) has only risen by 10% in the past six months.

A lot of ASX stocks have gone up in the last few months, but there may be an explanation for the rally.

Reasons for the rise

MST Marquee analyst Brian Johnson was speaking at the Australian Financial Review Banking Summit.

Earlier in the month, the CBA share price reached above $121. The banking analyst acknowledged CBA is "the best bank", but there's more to it than that.

He said there has been more buying than selling since October when ASX bank shares were unloved – credit growth was slow, net interest margins (NIM) were falling and banks were agreeing to sizeable pay rises which would increase labour costs. Johnson said he had never seen a time of a worsening revenue outlook while costs were also going up.

Then, in November, it seemed that the US Federal Reserve was pivoting and was starting to think about cutting interest rates.

This change meant global funds which had a smaller position of ASX bank shares decided to rethink their weighting, and they bought (CBA) shares because of the rising Australian dollar and the easing fears about Australian house prices. This also created a squeeze for CBA shares, leading to short sellers needing to cover their positions.

On top of that, according to Johnson, there were growing fears about the Chinese economy earlier this year, which meant Asian investors decided to look at markets outside of China, such as Australia and India. They also decided to buy ASX bank shares, like CBA.

CBA itself reportedly added to the buying by buying CBA shares for the dividend re-investment plan (DRP).

While there was a big increase in buying, there weren't many sells thanks to CBA's "sticky" share register, with some long-term investors not wanting to trigger a capital gains tax bill.

Johnson was quoted by the AFR who said:

CommBank has always been expensive – best management, generates the most capital and no one owns it which means you perpetually get in these periods where people have to buy it and get squeezed up.

If you think about every single one of those drivers, has anything changed?

The credit growth outlook is still slow, we still see outrageous competition coming through on both sides [mortgages and deposits]. Not much has really changed except the share prices are a lot higher.

CBA share price valuation

Using the independent estimates on Commsec, the CBA share price is valued at 21 times FY25's estimated earnings. This is a very high price/earnings (P/E) ratio for a bank, and I think it has brought forward capital growth. It could be difficult to deliver much more increases in the next year or two.

Considering CBA's profit is expected to fall in FY24 and FY25, I'd be looking at other ASX shares for value.

Motley Fool contributor Tristan Harrison 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.

More on Bank Shares

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Bank Shares

$10,000 invested in NAB shares 5 years ago is now worth…

NAB shares have delivered some benchmark smashing returns over the past five years.

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Bank Shares

Will CBA shares continue to outperform BHP shares over the next 5 years?

Which of these two giants will perform best? Let's find out.

Read more »

Bank building with the word bank in gold.
Bank Shares

What price targets does Macquarie have on the big 4 banks?

Here's what the broker has to say about the big 4 bank share prices.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Should I buy ANZ shares today?

With a 5.7% dividend yield, are ANZ shares a good buy right now?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Bank Shares

Can Bank of Queensland shares keep outperforming the other ASX 200 bank stocks into 2026?

A leading expert offers his verdict on what’s ahead for Bank of Queensland shares.

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

Forget CBA shares, Ord Minnett says this ASX bank stock could rocket 50%+

Let's see which bank stock could be a better buy.

Read more »

ASX 200 shares broker downgrade origami paper fortune teller with buy hold sell and dollar sign options
Broker Notes

Are Bendigo Bank shares a buy, hold or sell? Here's Macquarie's latest recommendation

Should I buy the dip on Bendigo Bank shares today?

Read more »

A man thinks very carefully about his money and investments.
Bank Shares

Why these experts say sell CBA shares now

These two investment experts recommend selling CBA shares today. But why?

Read more »