3 reasons I think the CBA share price may crash!

I see CBA shares going just one way from here…

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Over the past few weeks, the Commonwealth Bank of Australia (ASX: CBA) share price has been in the news again, and for all the right reasons. We have seen fresh new record high after record high tumble for this ASX 200 bank stock. No doubt that has made CBA's veritable army of retail shareholders a very happy bunch.

The bank's most recent all-time high came just yesterday. This saw CBA shares hit $128.68 each. Today, the bank is trading just under that, going for $126.90 a share at the close on Wednesday.

At this share price, CBA stock is up 5.7% over the past month alone. Investors have also enjoyed a year-to-date gain of 11.71% over 2024 so far and a 29.6% lift over the past 12 months.

Now, I regard CBA as a quality business and probably the best-run bank in Australia. It deserves to keep its place as one of the top stocks in the S&P/ASX 200 Index (ASX: XJO).

But I also think the CBA share price is highly likely to crash or at least stagnate over the next 12 months.

Here are three reasons why.

3 reasons why the CBA share price might crash

The bank isn't growing

You'd think that a stock that has appreciated by almost 30% over the past 12 months would be demonstrating at least some earnings growth. Or even revenue growth. Unfortunately, that isn't the case when it comes to CommBank.

CBA's last earnings report, covering the half-year ended 31 December 2023, showed revenues of $13.58 billion, down 3% on the same period in 2022.

The bank's profits from ordinary activities after tax, as well as its net profits, both fell 8% compared to the prior period as well.

That doesn't inspire confidence that this CBA share price rally that we've seen is built on solid ground.

The dividend yield is not impressive

If you ask almost any owner of ASX bank shares why they have a bank in their portfolio, they will probably tell you it's for the fat, fully-franked dividends. That's fair enough. Most ASX banks, including CBA, have been responsible for some of the largest and most consistent dividend payouts on the Australian share market over the past two or three decades.

Unfortunately, CBA's recent rises have somewhat neutered its dividend yield. While its rivals like Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ) still offer dividend yields of more than 5% today, CBA's yield currently sits at a rate unimpressive 3.58%.

Not only can you get a better yield from any other bank stock right now, but you can also get more cash if you buy Coles Group Ltd (ASX: COL), Telstra Group Ltd (ASX: TLS), Medibank Private Ltd (ASX: MPL) or Transurban Group (ASX: TCL) shares.

In my view, this reality will eventually hollow out buying pressure for CB shares, at least until its dividend yield returns to something one could consider normal for an ASX bank.

The CBA share price is insanely expensive

Finally, let's talk about valuation. The recent rally in the CBA share price has resulted in this bank having the most expensive valuation out of any of its ASX peers, and by a mile. CBA stock is currently trading on a price-to-earnings (P/E) ratio of 22.23. In contrast, National Australia Bank Ltd (ASX: NAB) is presently on a P/E ratio of 16.7. Westpac is at 15.23 and ANZ at 12.53.

This means that CBA investors are paying almost double for one dollar of earnings than ANZ investors are right now.

Commonwealth Bank also currently has a price-to-book (P/B) ratio of 2.96, which is also extremely high for a bank.

According to Bloomberg, this not only makes CBA the most expensive bank on the ASX, but in the world. Its P/E ratio is even double that of the world-class American bank JP Morgan Chase. Not exactly a title you want in an investment.

Foolish takeaway

From where I'm looking, CBA shares are grossly overvalued, period. I'm not saying that this stock is destined to crash in the next 12 months. But for me, the fundamentals point to investor exuberance in this case.

I can't see how CBA can continue to climb in value while its earnings fall and its dividend yield drops. All in all, this is one ASX 200 stock I am staying the heck away from at its current price.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in National Australia Bank and Telstra Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase and Transurban Group. The Motley Fool Australia has positions in and has recommended Coles Group and Telstra Group. 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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