The Commonwealth Bank of Australia (ASX: CBA) share price looks expensive to me, but that doesn't mean I would sell its shares straight away.
Price versus value
In investing — as in life — there is a difference between price and value. As Warren Buffett, the world's best investor, famously said, "price is what you pay, value is what you get".
Instead of asking if the Commonwealth Bank (CBA) share price is expensive, we should be asking if it is overvalued given its outlook.
CBA outlook
I'm yet to meet a long-term CBA shareholder who wishes they sold their shares. That's because the bank has performed exceptionally well over many years, despite year-to-year hiccups now and then.
Unfortunately, over the next five to 10 years, I do not believe the bank will perform as well as it has in the past. I think it will be a bigger and better bank in 10 years' time, but it will not be able to grow as fast.
What's more, the downside risks appear to be mounting.
Indeed, while interest rates are at very low levels and bad debts are bottom bouncing, household debt is at record high levels and property prices are eye-watering. That mix does not bode well for CBA shares over the next few years, in my opinion.
CBA share valuation
At today's price of $82.60, having fallen from over $87 earlier this year, CBA shares trade at a premium valuation to it peers, like Westpac Banking Corp (ASX: WBC).
Given its market dominance, I think CBA shares deserve to be slightly more expensive than their peers. However, I wouldn't buy them at these levels because they don't look cheap in absolute terms.
Foolish Takeaway
Commbank shares don't appear cheap at today's prices. The best label for CBA shares is a 'hold', in my opinion. However, if an investor held more than 20% of their portfolio in Aussie bank shares, I would sell some of the exposure — because I think that's too much to an industry that is not likely to grow very fast.
