ASX experts: CBA shares are overvalued

These experts are united in their views on the CBA share price…

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The performance of Commonwealth Bank of Australia (ASX: CBA) shares over the past few months has been rather extraordinary.

It was only around three months ago, at the end of October, that the ASX 200's largest bank stock was trading at approximately $96. That was dangerously close to CBA's current 52-week low of $93.05.

But fast forward to January 2024, and we've not only seen the CBA share price climb 20% above those October lows but hit a new all-time record high in the process. Just yesterday, we covered the bank's fresh new high of $116 a share.

At the time, my Fool colleague Bronwyn went into how expectations for continued growth in the home mortgage market could be responsible for this new bout of optimism with CBA shares.

However, some ASX experts aren't celebrating this new record high for the CBA share price. In fact, they are ringing some alarm bells.

A recent report in the Australian Financial Review (AFR) quotes Jarden analyst Carlos Cacho's views on CBA shares.

Cacho points to "the growing likelihood of a 'soft landing' for the economy and the possibility of rate cuts this year" to explain why investors continue to flock to the CBA share price this January. He also says that international funds are playing a role too:

If international investors are buying the bank, they will generally just buy CBA because it is the biggest bank down here.

However, that doesn't mean that CBA is being priced fairly in Cacho's eyes.

Noting that CBA's price-to-book (P/B) ratio is sitting around 2.7, Cacho argued that this places the bank well above most of its peers, which are asking around 1.5 P/B.

"It is expensive", the analyst was quoted as stating. "It is our least preferred of the big four".

Is the CBA share price overvalued right now?

The report also shares the views of two additional analysts, Citi's Brendan Sproules and Andrew Triggs of JPMorgan.

Sproules described the recent rally in the CBA share price as "disconnected from fundamentals" That assessment comes down to "the mortgage book has been in attrition, funding costs have continued to normalise, and credit quality continues to normalise".

Triggs agrees. He labels CBA shares as a 'sell', and told the AFR that, "under any reasonable valuation framework, you can only really get the share price between $80 and $90 at best".

However, he added this caveat on why CBA shares might not actually come down to those kinds of levels in the near future:

From a fund manager's standpoint, it is easier to sleep at night owning CBA than say [Westpac Banking Corp (ASX: WBC)].

You are not taking significant execution risk when it comes to owning CBA. Whereas with Westpac, it is commencing a four-year transformation program that could go either way at this stage…

Maybe the catalyst for CBA's share price to fall is one of the other banks greatly improving and providing a more valuable alternative to investors.

Cacho concurs. He told the report that while the valuation was stretched, he "did not see a credible reason for a re-rating" when it comes to CBA shares.

As such, these ASX experts seem to have come to the slightly paradoxical conclusion that this ASX 200 bank is indeed overvalued, but not heading for a correction anytime soon. That probably won't persuade too many investors to sell their CBA shares today, I'd wager.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase. The Motley Fool Australia has no position in any of the stocks mentioned. 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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