Commonwealth Bank of Australia (ASX: CBA) shares have been an incredible investment for investors in recent years. With low interest rates and falling bad debts, the bank has managed to produce record annual profits, while at the same time increasing its already lucrative dividend distributions.
The problem is, many investors are holding onto that strong history and assuming the stock can continue to deliver market-crushing performance over the coming years – a scenario that is looking increasingly unlikely. Here are four reasons why you should consider selling your Commonwealth Bank shares.
1. Valuation. At $85.23, the stock is trading within 2% of its all-time high which was recorded late last month. At that price, it's trading on a price-book ratio of 2.8 times as well as a price-earnings ratio of 16.1 times last financial year's earnings, making it one of the most expensive bank stocks in the world.
2. Growth. The bank's profit growth could come under significant pressure in the coming 12 months with bad debt charges tipped to rise and competition for new customers expected to continue heating up. Earnings growth may be in the mid-single digits which would hardly justify its premium valuation.
3. Dividends. The bank's incredible fully franked yield has played a key role in attracting investors over the years, but it may struggle to grow or even maintain its current dividend if new regulations are put in place. The big four banks will likely be required to hold more capital in reserve which could see that dividend growth slow down, which would no doubt see some investors head for the exits.
4. Better opportunities. Here at The Motley Fool, our ideal holding time is 'forever'. However, one of the reasons Foolish investors would consider selling is if there are stronger alternatives which could grow our wealth at a faster clip. Regardless of whether Commonwealth Bank rises another few percentage points, the returns are highly unlikely to match those of some of the market's other promising stocks.
