3 reasons to overlook Commonwealth Bank of Australia shares

It can be difficult to ignore a stock doing as well as the bank, but is sometimes necessary

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When a stock is doing as well as Commonwealth Bank of Australia (ASX: CBA) has been, it can be difficult to look past.

After all, while it just last week set a new all-time high of $81.37, it has also jumped 16.7% in the last 12 months and an astonishing 132% in the last five years (not including dividends). In comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen just 8.5% and 44% in the same time periods.

Despite these excellent returns, investors would be best to bypass Commonwealth Bank. Here are three reasons why:

1. One of the reasons behind the bank's surge has been its solid, fully franked dividend yield. As its shares have risen, its yield has dropped and is no longer anywhere near as attractive as it once was at just 4.7%.

2. Commonwealth Bank, along with its major peers Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB,) has been achieving record profits, thanks largely to low bad debts. These bad debt charges will inevitably rise over time which will result in significant pressure on earnings.

3. The bank's shares are expensive on virtually every measure. Its P/E ratio for instance, is currently 15.3 compared to its 10-year average of roughly 13.2, while it trades on a Price-Book ratio of 2.9.

This stock is a much better bet than the banks

Although the banks are amongst Australia's top corporations, there is no value to be realised from buying the shares now. The good news is, there are plenty of far greater opportunities currently presenting themselves.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »