Here’s why I think CBA shares are a good buy today

Commonwealth Bank shares are selling at a P/E of 12.41. Are CBA shares a good price considering its current position and future plans?

| More on:
Small grey plastic model of a bank building on top of a piece of paper with a performance chart showing red and blue columns

Image source: Getty Images

Commonwealth Bank of Australia (ASX: CBA) shares are currently selling at a price-to-earnings ratio (P/E) of 12.41. This is just below the company’s 10 year P/E average of 13.7. Year-to-date the CommBank share price is still down by 14.3%. For me, this appears a relatively good entry price for a bona fide ASX blue chip. Moreover, beyond price, the company is working diligently to build value.

CBA wealth

Colonial First State has long been the CommBank’s wealth-management arm. On 15 March CommBank announced it would be selling 55% of Colonial to US private equity firm KKK for AUD$1.7 billion. This will allow the bank to simplify its business model and focus on its core business of banking.  

CommBank and KKK have both announced plans to invest significant capital into Colonial. Among these is a more rapid transition to digital channels. 

Commonwealth Bank CEO Matt Comyn said:

“We are confident that together with KKR, we can provide CFS with an increased capacity to invest in product innovation, new services and its digital capabilities. We have a shared vision for CFS to be one of the leading superannuation and investment businesses in Australia.”

Branching into buy now pay later (BNPL)

CommBank announced it was to launch Swedish private fintech, Klarna in Australia on 30 January. A plan later derailed by the COVID-19 outbreak. CommBank holds a 5.5% stake in Klarna. Increasing from its original 1.8% holding. The companies will jointly fund and have 50:50 ownership rights to Klarna’s Australian and New Zealand business.

Given the events in the BNPL sector this week this is a very big deal. Although it recently made a loss, Klarna is already one of the giants in the BNPL space. In fact, it was the original pioneer. CommBank’s 5.5% purchase provides access to an existing large customer and merchant base with an established beachhead in the USA. 

CommBank is Australia’s largest payments processor. This means its 50%-owned Klarna Australian operations will start with immediate national coverage.

CBA shares

 CommBank shares are selling at a reasonable price of $68.76 at the time of writing and it is well-positioned for future growth. Its $1.5 billion allowance for COVID-19-related damage is covered by the sale of 55% of Colonial. Furthermore, Colonial is more likely to increase earnings as part of the core business of a private equity firm. Lastly, its position in Klarna sets it up to play a dominant role in the Australian BNPL sector, as well as on the global stage. 

There are still uncertain times ahead to be sure. However, I believe that CommBank shares are a wise investment at this price over the medium to long term. It will lock in steady capital growth, as well as locking in a future dividend at a 12-month trailing average at 6.28%.  

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor Daryl Mather 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

a group of people gathered around a laptop computer with various expressions of interest, concern and surpise on their faces. All are wearing spectacles.
Broker Notes

Broker says Life360 (ASX:360) share price has ~80% upside

The Life360 Inc (ASX: 360) share price was one of the best performers on the Australian share market in 2021. …

Read more »

best asx shares represented by best in show ribbon
Broker Notes

3 ‘champion stocks’ for ASX investors in 2022

If you’re a fan of buy and hold investing, then you may want to look at the “champion stocks” listed …

Read more »

Young woman in yellow striped top with laptop raises arm in victory
Share Gainers

These were the best performing ASX 200 shares last week

The S&P/ASX 200 Index (ASX: XJO) had a week to forget after the US Federal Reserve indicated that it would start to …

Read more »

asx share price falling lower represented by investor wearing paper bag on head with sad face
Share Fallers

These were the worst performing ASX 200 shares last week

It was another tough week for the S&P/ASX 200 Index (ASX: XJO) after the US Federal Reserve indicated that it would start …

Read more »

a group of stockbrokers sit in a room with a computer and writing on a wall in chalk indicating calculations and graphs while discussing something on the computer screen.
Broker Notes

Here’s what 67% of brokers think of the current IAG (ASX:IAG) share price

Key points The IAG share price traded up today IAG has made a solid start to the year having rallied …

Read more »

Top 10 - asx shares today
Share Market News

Here are the top 10 ASX shares today

Today, the S&P/ASX 200 Index (ASX: XJO) fought back against the selling pressure throughout the day to finish in the green. …

Read more »

The word inflation written with a ticking time bomb.
Share Market News

Why is it when Jerome Powell sneezes, the ASX 200 catches a cold?

Key points The ASX 200 took a hit following comments from the United States Federal Reserve chair Jerome Powell Expectations …

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format
Bank Shares

Goldman tips Bank of Queensland (ASX:BOQ) share price to rise 25%

If you’re interested in gaining exposure to the banking sector, then it could be worth considering Bank of Queensland Limited …

Read more »