On the surface, it looks as though this Wednesday's session has been a rough one for Commonwealth Bank of Australia (ASX: CBA) shares. At the time of writing, the CBA share price has lost 1.32% of its value and is back to around $142.30.
That's a decent loss, to be sure. However, when you consider that this move merely puts CBA about 2% below its current all-time record high of $145.24, things suddenly don't look so dire, particularly when we consider that this ASX 200 bank stock only hit that new record last month.
Despite today's retreat, CBA shares remain up a huge 25.35% in 2024 to date, as well as an even more impressive 48% over the past 12 months. Check it out for yourself below:
As we discussed just yesterday, this rapid ascension of the CBA share price might elicit some mixed reactions, depending on whether one currently owns this bank stock.
However, there's little doubt that anyone who is thinking about buying more CBA shares today is probably weighing up the wisdom of purchasing more of this bank when its share price has risen so enthusiastically.
Well, let's debate whether buying CBA today is a good long-term bet or just pure madness.
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Is the CBA share price a buy so close to record highs today?
Unfortunately, for CBA bulls, I have to admit that I relate to the latter characterisation far more than the former.
I tend to agree with the views of Peter Warnes that we covered yesterday, in which CBA shares' blistering rise appears to be disconnected from this company's fundamentals. Warnes argued that:
Despite a price/earnings ratio (PER) of 24, typically reserved for companies with strong growth potential, CBA's compound annual growth in earnings per share was just 1.1% over the past decade. I suggest future growth will be modest, circa 5% at best, making the current P/E and PEG ratios unsustainable.
Back in August, CBA delivered its full-year earnings report, covering FY2024. For the year to 30 June 2024, the bank reported that its operating income was flat at $27.17 billion, its operating expenses were up 3% to $12.22 billion, and its cash net profits after tax were down 2% to $9.84 billion.
These figures, at least to me, in no way justify this bank's near-50% gain over the past 12 months. In fact, they make this gain look completely unjustified. I also agree with Warnes' assertion that there aren't many growth opportunities in easy reach for CBA going forward.
As such, I think buying CBA shares today isn't quite madness, but it is certainly highly optimistic. Remember, you don't even get the comfort of a bank-standard dividend with CBA today. Its recent share price explosion has resulted in the company trading on a dividend yield of just 3.27% right now.
All in all, I am staying well away from this bank stock at its current levels. I just cannot envisage a scenario that prompts CBA to trade meaningfully higher anytime soon. I could be wrong, as I have been in the past, on this one. But even so, that's my position, and I'm sticking to it.
