For a long time, Commonwealth Bank of Australia (ASX: CBA) shares have been one of the most reliable investments to count on.
While they have always offered safety and security as well as extremely generous dividends, they have also climbed in value at an incredible rate. In fact, they have risen more than 90% since mid-September 2011, far outpacing the likes of the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), and an even more astonishing 149% over a 10-year period despite the heavy falls endured during the GFC. If you were to include all dividends paid, those numbers would be much higher…
However, it seems that the time may now have come where investors should stop relying on the stock, at least for the time being. Here are three reasons why the bank may not be such a great investment today.
- Like Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank's shares are flirting with their all-time highs. While that's great for current shareholders, there appears to be very limited upside potential for prospective investors with the stock already trading on a projected P/E ratio of 15.3 and a Price-Book ratio of 2.9.
- Those valuations suggest that investors expect the bank's earnings to continue growing strongly over the medium-to-long terms. Although the bank is recognising record-profits currently, its earnings could actually come under significant pressure in the future when interest rates and bad debt charges inevitably rise.
- One of the primary reasons behind the bank's rapid rise in recent years can be attributed to its juicy fully franked dividend yield, which has attracted investors in light of the low interest rate environment. However, the stock now yields just 4.6%. Although that is still a decent return, it could well be offset should the stock fall in value in the near-term.
Like many other Aussie blue-chip stocks, Commonwealth Bank just doesn't boast the same appeal anymore and shouldn't be purchased today. The good news is, there are still plenty of appealing buying opportunities to take advantage of, even with the S&P/ASX 200 sitting over 5,400 points…
