Commonwealth Bank of Australia (ASX: CBA) has once again acted as a key drag on the sharemarket, with its shares hovering around its lowest price in more than two years.
The shares have fallen $1.06 cents, or 1.5%, to trade at just $71.44 which compares to a 0.6% fall for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). This is something investors have become somewhat used to over the last six months, over which time the shares have dropped more than 25%, compared to a near 16% decline for the ASX 200.
Although Commonwealth Bank has traditionally been seen as one of the market's best 'defensive' stocks, given its sheer size, reliable dividend yield, and the vital role it plays within our economy, the shares had become significantly overpriced as they approached their peak in March around the $97 mark.
This is based on historical data, which showed the company was trading on a price-earnings and price-book multiples that were significantly higher than what it had traded on in the past. It seems that the market recognised this, and has thus sold the bank down heavier than the market itself.
Although there's no denying that Commonwealth Bank – or any of the banks, for that matter – are high-quality businesses, investors still need to be just as careful to only ever pay a reasonable price for the shares. Even at today's price tag, I'd be inclined to avoid Commonwealth Bank in favour of some of the market's other opportunities.
