The Commonwealth Bank of Australia (ASX: CBA) share price appears high relative to its peers and the market.
At the current CBA share price of $83, it trades at over 2.3 times the value of its net assets, which includes all of its mortgages, credit cards, buildings, etc.
Meanwhile, its banking peers trade at much lower multiples of their assets:
- National Australia Bank Ltd. (ASX: NAB) – 1.65 times
- Westpac Banking Corp (ASX: WBC) – 1.95 times
- Australia and New Zealand Banking Group (ASX: ANZ) – 1.56 times
- Macquarie Group Ltd (ASX: MQG) – 1.84 times
Typically, lower equals better when it comes to valuation multiples.
As can be seen, CBA shares trade at a premium valuation relative to those of its peers. That means investors are willing to pay more for CBA's assets than any other.
It may be because investors think it has better lending standards, is likely to grow faster or is a safer investment.
On the dividend front, CBA's 5.06% dividend is second smallest to Macquarie Group's 4.8%. Macquarie's is only partially franked whereas CBA's is fully franked. However, it could be argued that Macquarie's dividend will grow faster than CBA's over coming years.
Using analyst estimates, CBA shares appear to be trading around fair value. According to analysts surveyed by The Wall Street Journal, the fair value of CBA shares is $83. Therefore, at their current price of $82.80, CBA shares may not be in bargain territory right now.
Foolish Takeaway
The likelihood of Australia's biggest company becoming significantly undervalued is low. Given so many analysts follow the company and it forms the bedrock of many share portfolios, the chance of picking up shares for far less than what they are worth might only come along every few years.
For banks, this is generally when the economy is in disarray and the sharemarket has crashed.
