Is the CBA share price a buy right now?

Is the Commonwealth Bank of Australia (ASX:CBA) share price a buy right now? The ASX bank sector is roaring back to life.

| 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

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy? The ASX bank sector has been roaring back to life in recent weeks.

Since 25 May 2020 the CBA share price has soared higher by 22%. The market seems to think that the $60 billion jobkeeper overestimation means the economy will be in much better shape. That jobkeeper estimation error was due to overly pessimistic forecasts according to reporting by the Australian Financial Review.

The performance of CBA's earnings and share price is largely linked to the Australian economy. Indeed, every ASX bank relies on a solid national economy. CBA is exposed to the same sorts of systematic risks as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Where to now for the CBA share price?

The CBA share price is still down by around 19% from the level at 21 February 2020. So it's not as though investors are pricing in a complete recovery for CBA yet.

The major bank made a $1.5 billion additional credit provision for the potential impacts of COVID-19 in its third quarter update.

If CBA's provision is enough to account for all of the potential damage then it may in a much better position than investors were fearing a couple of months ago.

However, there's one big factor I'm wary of. The official Australian interest rate is now incredibly low. This will likely cause a negative hit to CBA's net interest margin (NIM). The NIM is important because banks generate a lot of their overall profit from the money they lend out.

I'm not sure how much higher CBA's share price can go over the next couple of months. COVID-19 will cause a sizeable hit to the profit this year.

It will be interesting to see what CBA does with its dividend. ANZ and Westpac decided to defer the dividend. NAB decided to pay a much smaller dividend. After the recent strong share price increase for CBA, I'd be inclined to go for other shares first.

Motley Fool contributor Tristan Harrison 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 Bank Shares

A woman works on her desktop and tablet, having a win with crypto.
Bank Shares

Own NAB shares? The bank just made an important crypto investment

NAB just increased its crypto exposure.

Read more »

Woman relaxing on her phone on her couch, symbolising passive income.
Dividend Investing

Here's how much passive income I'd get if I invested $20,000 in Westpac shares now

A $20,000 investment in Westpac shares could deliver some welcome additional passive income.

Read more »

Woman on her laptop thinking to herself.
Bank Shares

Are ANZ shares undervalued considering its FY25 outlook?

Do you know how much profit ANZ is forecast to make in FY25?

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

What's the outlook for the Westpac share price in FY25?

Top broker Goldman Sachs outlines three challenges for the ASX 200 bank in FY25.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Broker Notes

Is the ANZ share price 'the best value of the major banks'?

ANZ shares are in the green today.

Read more »

A man looking at his laptop and thinking.
Bank Shares

'Attacked from all angles': Why this fundie is betting against the momentous rally in CBA shares

Up 27% in a year, this top fund manager believes the CBA share price rally is overdone. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Can owners of NAB shares bank on a good outlook for FY25?

Can NAB keep outperforming the market? The outlook is clouded.

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

What is the outlook for CBA shares in FY25?

Can investors bank on another good year from CBA in FY25?

Read more »