After hitting all-time highs in March, why did the CBA share price tumble 5% in April?

After hitting new record highs in March, the CBA share price retreated in April. But why?

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

Image source: Getty Images

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

Following on a blistering six-month run higher, the Commonwealth Bank of Australia (ASX: CBA) share price sank 4.8% in April.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed out March trading for $120.34. When the closing bell sounded on 30 April, shares were swapping hands for $114.54.

That saw the CBA share price underperform the ASX 200 in April, with the benchmark index slipping a lesser 3.0% over the month.

Though you're unlikely to hear investors who bought shares in early November complaining. CommBank stock closed out April up more than 18% from its 31 October levels.

Here's what happened with the big four bank in the month just past.

CBA share price retreats from record highs

April presented a very different picture from March, where we saw the CBA share price notch a series of new all-time highs, closing at $121.45 a share on 8 March.

With no significant price-sensitive news out from the bank in April, some of the selling pressure looks to be related to that strong run, with numerous analysts cautioning that CBA's valuations are looking stretched.

As the Motley Fool reported on 3 April, Morgans analyst Damien Nguyen slapped a sell rating on the bank, despite noting it's a high-quality company.

According to Nguyen:

Australia's biggest bank enjoys a loyal retail investor and customer base. However, we believe potential medium-term returns are too compressed at current prices considering its earnings outlook and elevated trading multiples.

Morgans has a 12-month target for the CBA share price of $91.28.

And on 16 April the Motley Fool added UBS to the list of brokers that think the CBA share price has further to fall. Though UBS is more optimistic than Morgans.

Citing cost inflation and CommBank's sizeable spending on information technology (IT), the broker believes the bank's costs will increase. UBS has a price target of $105 on the bank.

Indeed, in FY 2023, CBA's IT expenses increased by 8% year on year.

But not everyone believes CBA's IT spend will pressure its share price.

Perpetual Investment Management portfolio manager Anthony Aboud points out that Australia's biggest bank has been quick to embrace new tech, particularly artificial intelligence (AI).

"If you were to believe that there would be cost out efficiencies through AI initiatives, CBA has historically been the one bank which could be able to capitalise on that first," Aboud said.

What else were ASX 200 investors considering in April?

Atop concerns over potentially stretched valuations (which really is nothing new), the CBA share price came under the same pressures that sent the ASX 200 and rival bank stocks lower in April.

Those headwinds include increasing odds that the RBA and US Fed will both keep interest rates higher for longer than the market was previously pricing in. This could lead to higher levels of non-performing loans in the months ahead.

CBA releases its third-quarter update next week, Thursday 9 May.

Stay tuned!

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.

More on Bank Shares

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
Bank Shares

Are CBA share buyers getting the highest growth in return for being the most expensive?

Can higher growth justify the CBA share price premium?

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Bank Shares

Would I buy NAB shares above $33 right now?

Here’s my view on whether this bank stock is an opportunity.

Read more »

woman looking scared as she cradle a piggy bank and adds a coin, indictating a share investor holding on amid a volatile ASX market

1 popular ASX 200 share I wouldn't touch with 2 bargepoles!

This stock doesn’t appeal to me at all.

Read more »

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

Should you buy, hold, or sell this ASX 200 bank stock?

Does Goldman Sachs think investors should be buying this bank share? Let's find out.

Read more »

Calculator on top of Australian 4100 notes and next to Australian gold coins.
Bank Shares

ASX 200 bank shares: How dividends offset poor capital growth over 10 years

Here are the 10-year capital growth and dividend returns of the 7 biggest ASX 200 bank shares.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Bank Shares

Why Goldman Sachs just downgraded Westpac shares to a sell rating

Here's why the broker thinks now is the time to sell this big four bank.

Read more »

a business man in a suit holds his hand over his eyes as he bows his head in a defeated post suggesting regret and remorse.
Bank Shares

Why did NAB shares just get downgraded?

This banking giant just lost a bull. But why?

Read more »

Woman with $50 notes in her hand thinking, symbolising dividends.
Bank Shares

If I buy 1,000 CBA shares, how much passive income will I receive?

CBA's dividends might not be as lucrative as you'd think...

Read more »