Why the CBA share price is predicted to 'fall substantially': broker

Having hit all time highs on 16 May, this broker expects the CBA share price to come under selling pressure.

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After two consecutive days of gains, the Commonwealth Bank of Australia (ASX: CBA) share price is falling today.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed up 0.2% yesterday trading for $120.31. In late morning trade on Wednesday, shares are changing hands for $118.80 apiece, down 1.3%.

For some context the ASX 200 is down 0.9% at this same time.

Still, as you can see on the chart above, the CBA share price has been a very strong performer over the past 12 months, hitting a new all-time closing high of $122.26 earlier this month, on 16 May.

Despite slipping from that high, the ASX 200 bank stock remains up 19.3% since this time last year, far outpacing the 6.6% gains posted by the benchmark index over this same period.

And that doesn't include the two fully franked dividends CBA delivered over the year, totalling $4.55 a share. If we add those back in, then the accumulated value of CommBank shares is up 23.9% in 12 months, with potential tax benefits from those franking credits.

But with Australia's biggest bank now trading at a price-to-earnings (P/E) ratio of 20.9 times, well ahead of its peers, a growing number of analysts are saying the CBA share price may have flown too close to the sun.

And a substantial correction could be looming.

Is the CBA share price primed for a fall?

Novus Capital's John Edwards predicts that after the big run higher for the CBA share price, ASX 200 investors would do well to consider taking some profits.

According to Edwards (courtesy of The Bull):

Operating income fell 1% in the third quarter of fiscal year 2024. Net interest income was 1% lower and net interest margins slightly fell. We expect margin pressure on earnings to impact the full year results. CBA shares have risen from $111.86 on April 19 to trade at $120.815 on May 23.

We expect the share price to fall substantially following full year results expected in August. In the meantime, investors may want to cash in some gains.

The CBA share price closed down 2.2% on 9 May, the day the bank released its third-quarter results.

But don't rush to sell your CommBank stock just yet.

Despite the big run higher for the CBA share price, Tony Paterno, senior investment adviser at Ord Minnett, has a different prediction and 'hold' rating on the stock.

"The bank reported an unaudited 2024 third quarter cash net profit after tax of $2.4 billion, down 3% on the quarterly average in the first half. The decline is tracking marginally better than we expected," Paterno said (courtesy of The Bull).

Paterno added:

Operating expenses were well contained, up by 2%. In the next five years, we assume pricing on loans and customer deposits will enable a modest margin improvement and a return to loan growth in line with the market.

Long-term investors, take note.

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.

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