Is now the right time to buy CBA shares?

Year to date in 2019, the Commonwealth Bank of Australia (ASX: CBA) share price is down 2.32%

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since the banking royal commission began in December 2017, all eyes have been on Australia's financial services industry, particularly Australia's big four banks.

Year to date in 2019, the Commonwealth Bank of Australia (ASX: CBA) share price is down 2.32% to its current price of $70.71.

Performing slightly better than it's sector counterparts, at 3.32% above the sector average, the CBA share price is performing 8.04% below the ASX 200 average.

CBA's current profit-to-earnings ratio is 13.8 which is slightly higher than the other big four banks that range from 11.1 to 12.5. The relatively high dividend yield of CBA compared to other ASX-listed companies also makes CBA shares look attractive.

Looking purely at the numbers, the CBA share price looks like it could be a good buy. But, numbers can be deceiving.

With the current level of uncertainty in Australia's markets from the findings of the banking royal commission to declining property prices, it demonstrates the importance of understanding the macro picture when you're analysing stocks.

The fallout from the Royal Commission

A number of damaging findings about CBA were revealed in the banking royal commission. It was found the bank incorrectly sold credit card insurance to more than 60,000 unemployed customers. It was also discovered that fees charged by the bank's financial planning business, Commonwealth Financial Planning Limited (CFPL) were charged without delivering adequate advice and service.

In the lead up to the release of the final report from the banking royal commission, the Australian Securities and Investments Commission (ASIC) banned CFPL from charging fees and taking on new customers. Until the fee and conduct issues are resolved at CFPL, its 300 salaried planners have to operate without charging fees.

These issues don't bode well for investor confidence, and uncertainty in Australia's housing market isn't making things any better.

Will falling house prices in Sydney and Melbourne affect the CBA share price?

A recent study from BIS Oxford Economics found that property price falls in Sydney are only halfway to its trough before the market could pick up again.

Downturns in Sydney property prices usually last 14 quarters and have an average real price decline of 21%. As of March, we are six quarters into price declines with real prices declining by 16%. Based on the average length of a downturn in house prices, this means there could be at least another year or two of falling house prices before prices hit a trough.

With CBA being the largest mortgage lender in Australia, carrying a total balance of $374 billion across 1.5 million home loan accounts, further declines in house prices have the potential to jeopardise the company's performance.

The risk to CBA's share price is also amplified by the fact that $120 billion worth of interest-only mortgages will transfer to principal and interest mortgages over the next three years.

Foolish takeaway

While CBA shares might look attractive on paper, current market sentiment, property market uncertainty and the late-stage of the current business cycle are all factors indicating that now is not the time to be exposed to banking stocks.

If you're feeling impatient, however, why not check out this ASX company that is touted as being poised to benefit from a $22 billion boom industry.

Motley Fool contributor Nicola Smith has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Ten smiling business people wave to the camera after receiving some winning company news.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a wonderful Wednesday session for investors today...

Read more »

Six smiling health workers pose for a selfie.
Healthcare Shares

Guess how much $5,000 invested in Sigma shares in December 2023 is worth now!

Sigma shares have soared over the past year alongside the merger with Chemist Warehouse.

Read more »

Hands reaching high for a trophy with a sunset in the background.
52-Week Highs

These 7 ASX 200 shares just hit new 52-week highs

Do you own any of these winners today?

Read more »

Investor sitting in front of multiple screens watching share prices
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

Ecstatic man giving a fist pump in an office hallway.
Share Gainers

Why AGL, Bravura, Computershare, and Evolution Mining shares are roaring higher today

These shares are having a good time on hump day. But why?

Read more »

A gambler at a casino bets a pile of chips on one number
Share Fallers

Down 78% in a year, time to throw in the towel on Star Casino shares?

Has the time come to cut and run?

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Amotiv, Dexus Industria, St Barbara, and Wildcat shares are sinking today

These shares are having a tough time on hump day. But why?

Read more »

Man pointing at a blue rising share price graph.
Record Highs

This $23 billion ASX 200 stock just rocketed 11% to new all-time highs! Here's why

Investors in this ASX 200 financial share are bidding up the stock today. But why?

Read more »