3 reasons Commonwealth Bank of Australia is on the decline

In what has so far been a tough morning for the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), not even market darling Commonwealth Bank of Australia (ASX: CBA) has been able to extend its record run. The bank’s shares fell 29c or 0.4% to as low as $81.65 after closing yesterday at $81.94.

The fall comes after the bank’s shares surpassed the $82 mark for the first time in history yesterday, reaching a high of $82.09.

Here are three reasons the stock might be falling today…

  1. Profit taking. The bank’s shares have soared an incredible 22% over the last 12 months and an even more astonishing 66% since the beginning of 2012. Commonwealth Bank’s rivals, namely Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have delivered similar results, so it’s not surprising to see investors taking some of their profits now.
  2. Excessive valuation. Although one brokerage firm has set its sights on the stock soaring to $87.80 over the next 12 months, the market may be doubting this forecast (I know I sure am). Already it is trading on a price-book ratio of 2.9 and a P/E ratio of 15.5, which is well above its 10-year average of around 13.2. It seems the stock is now fully priced with little upside potential in the long run.
  3. Dividend Yield. As the bank has soared to fresh highs, its once idolised dividend yield has moved in the opposite direction. The stock now yields just 4.6% fully franked and investors are recognising there are far better options available.

A far better bet than any of the banks

Commonwealth Bank might be one of Australia’s strongest corporations, but it is by no means one of the best buys at today’s excessive price. The good news is, there is a far better option for your money right now.

This little known ASX company has already delivered eight consecutive years of profit and dividend growth... but with even more growth ahead, the shares are still a firm "BUY" today! Discover The Motley Fool's #1 dividend pick in our newly updated report. Simply click here for your FREE copy right now.​

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

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