'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?

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Commonwealth Bank of Australia (ASX: CBA) shares are storming higher today.

Again.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed up 0.1% yesterday, trading for $125.49. During the Tuesday lunch hour, shares are swapping hands for $127.41 apiece, up 1.5%.

For some context, the ASX 200 is up 0.8% at this same time.

As you can see on the chart below, today's intraday gain sees Australia's biggest bank stock up 12% in 2024 and up 27% over 12 months. And that doesn't include the two fully franked dividend payments made over the full year.

You may also notice that CBA shares are, once more, poised to close at a new all-time high.

So, can this strong momentum continue? Or is the big four bank about to hit a wall?

Have CBA shares flown too close to the sun?

A large number of bearish analysts have been caught out to date amid the ongoing bull run in CommBank stock.

Like the other big Aussie banks, CBA has benefited from a higher interest rate environment, which has supported its net interest margins (NIMs).

But the new record high share prices are not stopping Philip King, chief investment officer at Regal Funds Management, from taking up a short position in CBA shares.

Trading at a price-to-earnings (P/E) ratio of 22 times, King says the big four Aussie bank has some of the world's highest valuations.

According to King (quoted by Bloomberg):

Australian banks are now getting attacked from all angles by competition. Buy now, pay later operators are taking share in consumer lending, non-bank lenders are taking share in business lending and private credit are making inroads across the entire loan book.

King added that Australia's strict capital requirements are making Aussie banks "increasingly uncompetitive".

And with King forecasting that CBA's earnings per share (EPS), currently at $6.09, will decline in the coming years, he's betting the ASX 200 bank stock's recent rally is set to reverse.

Explaining why he took up a short position in CBA shares earlier this year, King said, "For 20 years the share price was driven by strong EPS growth, but over the last 10 years EPS growth has stalled.

He added that following the last year's blistering rally, CBA now counts as "one of the most expensive banks in the world and could derate over the next 10 years if EPS falls as we expect it will."

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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