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

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

Top brokers name 3 ASX shares to buy next week

Brokers gave the thumbs up to these ASX shares last week. Why are they bullish?

Read more »

Jessica Amir
Investing Strategies

6 ASX shares to buy and hold until the next leap year

These are the stocks to store in the portfolio until the next February 29 rolls around in 2028, according to…

Read more »

A woman ponders a question as she puts money into a piggy bank with a model plane and suitcase nearby.
Share Market News

If I invest $10,000 in Qantas shares, how much passive income will I receive in 2024?

Here's what analysts are predicting from the airline operator.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Big returns could be on the cards according to analysts.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Value Investing

Looking for ASX value shares? Here's 1 I'd buy and 1 I'd avoid!

It's not an easy exercise to identify which stocks are undervalued and which ones are simply terrible. Here's an example…

Read more »

A young girl looks up and balances a pencil on her nose, while thinking about a decision she has to make.
Opinions

Will I be buying Zip shares now the company has turned a profit?

Is now the right time to buy this BNPL stock -- or not?

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape
Opinions

1 ASX dividend stock down 55% to buy right now

Here's why I think this beaten-up stock could be an opportunity.

Read more »

Three analysts look at tech options on a wall screen
Share Market News

Here's how the ASX 200 market sectors stacked up this week

ASX tech shares are on fire, leading the 11 market sectors for a third consecutive week.

Read more »