Right now it appears likely that the Commonwealth Bank of Australia (ASX: CBA) share price will close out 2016 above $80 per share.
The Commbank share price started the year at over $85 but concerns over slowing house price growth and a sluggish economy appear to have weighed on the bank's share price.
However, in recent months, the market's enthusiasm for bank shares appears to have returned. Specifically, in November Commbank reported flat year-over-year net profit for the September quarter.
The bank said income growth was below expectations, with strength in the Australian dollar and higher insurance claims weighing on the result. However, the result was mostly in-line with expectations.
Should you buy Commonwealth Bank shares at $80?
At slightly more than $80 per share, Commbank shares trade at a premium valuation to its peers, such as National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
For example, Commbank shares trade at a dividend yield of 5.2% fully franked, lower than the banking sector average of 6.2%. Moreover, shares trade on a price-to-book ratio of 2.3 times, above the sector average of 1.3 times. The price-to-book ratio is a relative measure of a share price to the accountants' fair value of its assets (buildings, loans, etc.) — a lower value is normally better.
Paying a premium price for a company's shares is okay if you expect the business to grow. However, over the coming few years Commbank is not expected to grow as rapidly as it did in prior years.
Foolish takeaway
Commbank shares appear priced to perfection above $80. That means, you would not be getting a bargain if you bought shares today in my opinion. Having said that it is easy to see why investors hold Commbank shares in high regard.
