Commonwealth Bank of Australia (ASX: CBA) shares are still overpriced. Although they have fallen considerably since peaking in late July, investors who choose to buy today could still be committing themselves to years of underperformance.
The bank's shares have been the driving force behind the S&P/ASX 200 Index's (INDEXASX: XJO) rally in recent years but have been sold off recently due to a declining dollar, a recovering US economy and fears over Australia's inflated property market. This sell-off has investors wondering whether now is the opportune time to buy.
So What: Now trading at $75.78, the stock trades on a P/E ratio of just 14.3, which is actually lower than the average ASX 200 company. However, its limited growth prospects in the coming years also need to be taken into consideration.
The boost provided from low interest rates and low bad debt charges will soon start to wear off which could seriously impact the bank's ability to grow earnings at an impressive rate. As it stands, I wouldn't be surprised if the bank managed to grow earnings by just 5% annually over the next few years, which would not justify its current valuation.
Now What: One of the biggest reasons investors are still so attracted to Commonwealth Bank is its juicy dividend. While I still wouldn't be touching the stock, there is another company I am MUCH more bullish on.
