The Commonwealth Bank of Australia (ASX: CBA) share price has risen an incredible 29% in 2024 to date, and in the last year, it has climbed an astonishing 44%.
After such an incredible rise, investors may be wondering if the ASX bank share will be able to continue rising in 2025.
Lately, it's been a good time to be invested in the overall ASX share market. The S&P/ASX 200 Index (ASX: XJO) has risen 16% over the past 12 months.
I'm going to consider whether the CBA share price can reach $150.
I often say there's one real reason the share price of a profitable business rises: profit growth.
Image Source: Commonwealth Bank
Rising profit expected
In the 12 months to 30 June 2024, the business saw profit go backwards. Cash net profit after tax (NPAT) declined 2% year over year to $9.8 billion, while statutory net profit dropped 6% to $9.48 billion.
However, things are expected to improve in the 2025 financial year for the ASX bank share. Broker UBS is expecting CBA's net profit to rise to $10.1 billion. Investors love seeing profits rise because it can justify a higher CBA share price and fund larger dividend payments.
UBS suggests CBA's profit could rise to $10.2 billion in FY26, $10.5 billion in FY27 and $11 billion in FY28.
If CBA can make $10.1 billion of net profit in FY25, that would mean the bank could generate $5.99 of earnings per share (EPS). That would mean if the CBA share price reached $150, the price-earnings (P/E) ratio would be 25 based on FY25's forecast earnings.
The independent forecast on Commsec is more optimistic, with a prediction for EPS of $6.31 for FY25.
Investors will need to decide if that P/E ratio is appealing. The CBA average annual P/E ratio has been under 20 for most of the last decade, according to Commsec.
Other factors that could help drive the ASX bank share
The CBA share price could keep rising simply from institutional buying.
Superannuation funds and index funds need to keep buying ASX shares like CBA when investors give them more money to invest.
Those funds aren't trying to buy CBA shares at great value. They're just ensuring they own the ASX bank share with the correct allocation that their mandate decides they should, such as if the fund is tracking the ASX 200 or the S&P/ASX 300 Index (ASX: XKO).
If there are more buyers than sellers each month, then the CBA share price could keep rising over time.
What could cause increased selling? Large declines are difficult to predict, but the US election could cause volatility, as could rising arrears and falling house prices in Sydney and Melbourne. But I wouldn't bet the house on it.
I think institutional buying could be the key reason to send the CBA share price to $150 and beyond, if it is to happen next year. At this higher P/E ratio, I wouldn't say it's a good time to invest in new shares. The bank becoming more and more expensive, on an earnings multiple basis, doesn't seem appealing or particularly sustainable. I believe profit growth will be needed to lower the P/E ratio in the future.
