The Commonwealth Bank of Australia (ASX: CBA) share price hasn't done much over the last three years. It's currently $79.19 and three years ago it was $81.73.
Commonwealth Bank is by far Australia's largest business. It has delivered great returns for investors over the last two decades.
It's hard to say exactly which direction the share price will go, so here is my bull and bear case:
Bull case
Commonwealth Bank has been a large beneficiary from Australia's recession-free streak and the amazing property market.
Over the long-term Australia's population should continue to grow, the number of properties that need finance will continue to grow and property prices will probably grow over the long-term too.
Commonwealth Bank is seen as having one of the safest, if not the safest, loan book out of its competitors including Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australian and New Zealand Banking Group (ASX: ANZ).
Commonwealth Bank has a very pleasing grossed-up dividend yield of 7.59%. The share price may take a hit in the coming years but as long as the dividend is strong then it could be a good stock to hold for the income.
Bear case
There are warning signs for various parts of the Australian economy. Household debt and government debt is very high compared to a decade ago. This could be trouble if unemployment rises or landlords lose their tenants.
There appears to be an apartment oversupply on the horizon that could cause damage to developers. There could also be trouble for buyers who signed up to buy with a smaller deposit than what they will need when it comes to finalising the property deal.
Another problem is that Commonwealth Bank has saturated the loan market, along with its other big four competitors.
Commonwealth Bank's bad debts is almost at an all-time low, which suggests the cycle is about to turn. I don't like the idea of investing at the top of the cycle.
Time to buy?
Commonwealth Bank is a great business but I don't think it's a buy at today's prices. I'd only start considering investing in shares if the price were in the $60s. I'd rather get exposure to Commonwealth Bank through an investment in a listed investment company like Australian Foundation Investment Co. Ltd. (ASX: AFI).
