Are Commonwealth Bank (ASX: CBA) Shares an Absolute 'Sell' at Current Record Multiples?
Australian investors are grappling with a tricky question that doesn't have an easy answer: How do you sell a stock that continually defies expectations?
Commonwealth Bank epitomizes this conundrum. Financial experts have been recommending a "sell" since roughly the start of the previous year. Their price predictions range from A$99 to A$147, yet the bank hit record highs above A$188 in mid-2025 and remained in the A$160–175 bracket well into 2026.
This raises the question: Are we seeing a bubble primed to burst? Or is it possible that, for a change, the market's instinct is outsmarting conventional analysis?
The Numbers That Make Value Investors Lose Sleep
Let's be honest, Commonwealth Bank of Australia's valuation metrics are through the roof right now. Their price-to-earnings ratio stands at about 26 times earnings based on what they've already reported. Compare that to their major rivals—ANZ, NAB, and Westpac—who trade between 12 and 19 times earnings. Even more striking, the global banking sector averages only 11 times P/E.
Looking ahead, CBA's forward P/E ratio comes in at around 25.6 times, while their competition averages 16 times. That’s a hefty difference, folks.
Morningstar piles on, asserting CBA is trading at a whopping 486% premium above its estimated fair value. Yep, you read that right—nearly five times what it should be according to their analysis.
To top it off, Macquarie has slapped an underperform rating on CBA, pointing to a 12-month price target of A$105, suggesting a possible plunge of almost 40% from where we are now.
It's not like this is some lone wolf opinion either. Analysts en masse have been giving a similar verdict, clumping their price estimates in the A$118–124 range and branding the overall recommendation as a strong sell. In certain surveys, every single visible rating was a sell
This is unusual. For one of Australia's most widely held blue-chip stocks to carry a near-unanimous institutional sell rating while continuing to make new highs is, to put it mildly, strange.
What the Bears Are Actually Arguing
The bear case against CBA isn’t that it’s a bad business; everyone knows it’s a solid company. The issue is purely about its price.
CBA's earnings are forecast to grow by about 4% yearly, which lags the broader Australian market’s forecast of 12.2% annually. Revenue growth is expected to be similarly modest, at 4.7% a year.
CBA’s PEG ratio stands at 3.49 – a figure suggesting the market is paying a hefty price for lackluster earnings growth. Usually, you’d see a PEG ratio above 3 with a high-growth tech firm, not Australia’s top mortgage lender.
The main worry about valuations sums up like this: modest earnings growth makes it tough to justify high price-to-earnings ratios, even more so when interest rates rise and competition eats into profit margins.
Interest rate changes add another layer to the issue. With the Reserve Bank reducing rates, there's a real challenge for banks dealing with net interest margins. According to Macquarie, Commonwealth Bank of Australia (CBA) faces a nine-basis-point headwind from deposits that aren’t fully hedged, extending till FY27. That’s a bit worse compared to other banks which see their numbers at five to eight basis points. Still, CBA might make some gains from its hedging strategies.
Plus, Simply Wall St’s discounted cash flow model gives CBA's fair value at around A$112, showing the stock could be about 38% overvalued based on what the model considers its true worth.
Why the Market Keeps Ignoring the Bears
Honest commentators need to face this: the market's been off about CBA for a while now, and that says a lot.
The stock gave investors a 32.2% return in the last year, and over five years? A massive 203.1% jump. People who sold because of valuations a couple years back missed out big time.
In investing, being right about your idea but off on when to act isn't enough – it's basically just being wrong.
So what's keeping the premium alive?
The franchise truly stands out. CBA’s powerful position in retail and its solid online presence make it really tough for competitors to catch up. They handle more transactions than any other Australian bank and have the most-used banking app in the nation. People rely on it daily, creating value that isn’t obvious from just looking at a PE ratio.
The tech story at CBA is genuine, not just PR fluff. They claim a top-five spot globally for AI maturity in financial services. Plus, they recently finished moving their core banking platform to AWS, which they say is their biggest-ever system-of-record migration. If this AI rollout saves them money like expected, it'll back up their claim to a higher earnings multiple.
Investors now are betting on future efficiency gains that aren't seen yet. But there's another key factor keeping CBA's stock buoyant: index weight and institutional inertia. It’s one of Australia’s most widely held stocks. So no matter what, lots of different types of funds need to keep buying it—superannuation funds, index funds, and income-focused retail investors. This steady demand acts like a price floor that supports the stock even when valuations look a bit rich by pure fundamental measures.
The dividend still matters. CBA's fully franked dividend yield is about 2.88%, and for eligible investors, the grossed-up yield—factoring in franking credits—is closer to 4-4.5%. With income being scarce and franking credits holding real value for Australian retirees and self-managed super funds, that cash return counts big time.
The Question Nobody Wants to Answer Directly
Is CBA an "absolute sell"? I think that framing's a bit off. You see, the word "absolute" doesn't fit well in investment analysis. For short-term traders or those focused on momentum, the risk-to-reward ratio right now looks really bad. Valuations cap the upside, while any earnings miss or shift in market sentiment could hit hard. Most analysts agree on this too.
But for long-term investors in an SMSF who've had CBA in their portfolio for a decade, the picture changes. Selling means triggering a capital gains event and losing that franking credit stream.
And you have to find somewhere else to put the cash in a market that doesn’t offer many clear choices with similar liquidity and safety.
CBA's premium isn't new. For years, it's looked pricey compared to other banks on simple valuation ratios — trading at around 3.5 times book value while its peers are much lower. Yet, the premium has stuck around and sometimes grown. It's legit to wonder if it will return to average, but predicting when is impossible.
The bullish case basically says this: What if the average is changing? Index clout, strong balance sheet, top-tier brand, and digital leadership might justify a consistently higher multiple than what historical numbers suggest.
What a Rational Investor Should Actually Do
Instead of going with the crowd on an "absolute sell" or ignoring everything, here's what makes sense:
New buyers are taking on big valuation risks for modest returns. With a 26x multiple, earnings growth just doesn't add up by any standard measure. So if you're putting in fresh cash now, there are probably more value-oriented choices in Australian equities.
Holders need to consider their cost, taxes, income requirements, and portfolio concentrations before selling. The value of franking credits, especially for retirees, often provides a real reason to hold on, even when the capital gains look weak. Still, no one should assume the analysts are wrong forever just because they've miscalculated for two years. Mean reversion takes time, but it can hit fast when you least expect it. With Commonwealth Bank at 26 times earnings and 4% growth, it’s too perfect for an unpredictable economy. This doesn’t make the stock uninvestable though; it just means it’s currently very unforgiving at these price levels.
Source : ( Market Analysis )