Why did CBA shares jump 27% in FY24?

Australia's largest bank delivered the goods for shareholders in FY24.

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If you didn't have Commonwealth Bank of Australia (ASX: CBA) shares in your portfolio in FY 2024 then you missed out.

During the 12 months, Australia's largest bank's shares thumped the market with a gain of 27%.

As a comparison, the ASX 200 index rose 7.8% over the same period. Both figures don't include dividends.

Why did CBA shares thump the market?

It is worth noting that CBA was not alone when it comes to strong gains in the banking sector.

In fact, as covered here, it was only the fourth best-performing ASX bank share during the period despite its mouth-watering return.

Investors were piling into the sector after a series of results and updates that were in line with expectations boosted sentiment. In addition, the Australian economy held up nicely despite rising interest rates.

In fact, there were no meaningful increases in bad debts in the sector. And with the market believing that the rate cycle is coming to an end and rates will fall from here (maybe after one more hike), the outlook for the sector was looking positive. Particularly given that mortgage competition is expected to ease.

How did CBA perform financially?

During the first half, CBA's profits held up nicely in the tough economic environment.

The bank's operating income was up slightly to $13,649 million. This was supported by volume growth and higher volume-based fee income, offset by margin compression.

CBA's operating expenses increased 4% to $6,011 million due to inflationary pressures and additional spending on technology to support the delivery of strategic priorities.

While this led to cash net profit after tax falling 3% to $5,019 million, it didn't stop the CBA board from lifting its fully franked interim dividend by 2.4% to $2.15 per share.

Since then, it was more of the same for the bank. During the third quarter, CBA reported a 1% decline in operating income for the three months ended 31 March. Management advised that this reflects one less day in the quarter and slightly lower net interest margins due to continued competitive pressures and customers switching to higher yielding deposits.

CBA reported a quarterly unaudited statutory net profit after tax of $2.4 billion, which was down 3% on the first half average and 5% on the prior corresponding period.

What's next?

All the major brokers believe that CBA shares are overvalued at current levels.

But it is worth remembering that they were saying the exact same thing 12 months ago.

So, while it seems somewhat unlikely that the bank's shares will deliver big returns in FY25, it certainly isn't impossible.

Motley Fool contributor James Mickleboro 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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