Australia Markets closed

Here’s why the CBA share price might come under pressure this week

Sebastian Bowen
commonwealth bank CBA

The Commonwealth Bank of Australia (ASX: CBA) share price might face some pressures this week after a long period of share price growth.

CBA shares have banked a 13% return since August last year and around 10% in just the last three months, making Commonwealth Bank the best ‘big four’ ASX bank to own in recent times. Being the only major ASX bank not to cut dividend payments or franking credit attachments last year has also helped endure investors to the largest company on the ASX.

But according to reporting in the Australian Financial Review (AFR), a lot will have to go right with CommBank this week to keep the positive momentum going.

What’s happening with CBA this week?

Commonwealth Bank reports its half-year earnings for the 2020 financial year this Wednesday (February 12). It’s a big moment for Commonwealth Bank shareholders as the market will find out whether the price surges of the last few months have been justified.

There’s a lot to prove for Commonwealth Bank. At an earnings multiple of 18.41, it’s by far the most expensively priced ASX bank on the market today (even including Macquarie Group Ltd (ASX: MQG)). For comparison, National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are currently trading on earnings multiples of just 14.83 and 12.14 respectably.

In the same period last year, CommBank reported profits of $4.68 billion, but according to the AFR, analysts are only expecting a $4.34 billion number this time around.

The stakes are high for CBA – the bank’s shares are now priced to the point where any major (or even perhaps minor) slips from what investors are expecting might well lead to a big re-evaluation of the CBA share price.

The AFR quoted UBS analyst Jonathan Mott, who stated Commonwealth Bank was “the most expensive bank in any developed country around the world”, and was being valued at “more than double either ANZ or National Australia Bank” and “almost as much as Singapore’s three major banks combined”. That’s some sobering statistics, in my view.

CommBank will also be battling the fierce headwinds that are buffeting the entire banking sector as well. Record low interest rates are squeezing margins and discouraging investors to leave their money in the bank at all. I’m sure CommBank’s management is not looking forward to any more cuts this year if they eventuate either (a distinct possibility).

Foolish takeaway

Whilst Commonwealth Bank shareholders have enjoyed some healthy gains in the last few months, in my opinion, the bank will have to knock it out of the park for the current pattern to continue.

The post Here’s why the CBA share price might come under pressure this week appeared first on Motley Fool Australia.

If you ask me, I'd much rather invest in these Top 3 Dividend Shares To Buy For 2020

When Edward Vesely -- The Motley Fool Australia's resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 126%) and Collins Food (up 79%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

Click here now to access this free report.

More reading

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020