Unless you've just emerged from under a rock, you're likely aware that Commonwealth Bank of Australia (ASX: CBA) shares have been on a tear over the past year.
Despite closing down 1.5% at $152.78 yesterday, shares in the S&P/ASX 200 Index (ASX: XJO) bank stock are up a whopping 48% in 12 months.
And that doesn't include the two fully franked dividends the bank paid eligible shareholders over this time, which came out to $4.65 a share.
With the big lift in CBA's shares, CommBank's market cap topped $258 billion last week. This saw Australia's biggest bank move into the number 11 position of largest banks globally.
But a growing number of analysts believe the share price gains may have come too hard and too fast.
At yesterday's closing price, CBA stock is trading at a price-to-earnings (P/E) ratio north of 25 times. That's a significant premium to the other big four banks.
With that picture in mind, here are three headwinds MPC Markets' Jonathan Tacadena cites as a reason to consider selling CBA shares today (courtesy of The Bull).
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The case for selling CBA shares
"Australia's biggest company appears overvalued at current levels, trading at a price/earnings ratio well above its historical average," Tacadena said.
Citing the first headwind, he noted, "The strong share price performance in calendar year 2024 has pushed CBA to lofty valuations that may be difficult to justify."
Headwinds number two and three are the potential for lower profit growth and higher levels of bad loans in the year ahead.
"With interest rates likely to remain elevated for an extended period, CBA faces headwinds to profit growth and potential increases in loan arrears," Tacadena said.
"In our view, CBA's current share price seems to have priced in an overly optimistic outlook," he concluded.
And Tacadena is far from alone in his concern over the valuation of CBA shares.
Securities Vault's Nathan Lodge echoed many of the same concerns on The Bull, noting that: "The share price of Australia's biggest bank has enjoyed an incredible run. It has risen from $102.29 on November 16, 2023, to trade at $151.65 on November 14, 2024."
Lodge pointed out that CBA shares have kept marching higher "despite a 6% fall in statutory net profit after tax in fiscal year 2024 when compared to the prior corresponding period".
According to Lodge, "It was recently trading on a lofty price/earnings ratio above 26. At these levels, we believe the shares are trading at a substantial premium, so it may be prudent to cash in some gains."
