Is the CBA (ASX:CBA) share price overvalued?

The Commonwealth Bank of Australia (ASX:CBA) share price is up 18% in November. Is it overvalued now?

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Image Source: Commonwealth Bank

The Commonwealth Bank of Australia (ASX: CBA) share price has been a very strong performer in November.

Since the start of the month, the CBA share price has climbed an impressive 18% to $81.33.

Is it too late to buy CBA shares?

According to a note out of Goldman Sachs, investors might be better off looking at other investment options in the banking sector.

Its analysts have recently retained their sell rating but lifted the price target on the bank’s shares slightly to $65.84.

This price target implies potential downside of 19% for its shares over the next 12 months excluding dividends.

Why is Goldman Sachs bearish on the banking giant?

Goldman Sachs has issues over the bank’s valuation and the premium its shares trade at in comparison to the rest of the big four.

Following the release of its first quarter update this month, the broker said: “While CBA’s balance sheet is strong, with a sector leading capital and provisioning position, CBA’s operational performance in 1Q21, particularly as it relates to costs, does not justify the 24% premium it is currently trading on versus peers (versus 15% 15-yr average).”

Which bank does the broker like?

Goldman Sachs’ top pick in the sector is National Australia Bank Ltd (ASX: NAB).

It explained: “NAB remains our preferred major bank exposure, based on i) our view that it will deliver better than peer revenue growth, supported by its superior management of the volume/margin trade-off, ii) its investment spend which appears further progressed relative to peers allowing it to be more selective towards where resources are directed, contributing to its broadly flat FY21 cost target (c.0-2%), and iii) when combined, drives our forecast for NAB to deliver top of peer PPOP per share growth over the next three years.”

However, it is worth noting that the broker put a price target of $22.96 on NAB’s shares last week. But due to its strong share price gain, it is actually now trading above this at $23.60.

I suspect that Goldman Sachs will revisit its recommendation following NAB’s annual general meeting in the coming weeks. So stay tuned for that.

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Motley Fool contributor James Mickleboro 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.

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