Commonwealth Bank of Australia (ASX: CBA) shares have raced ahead of the benchmark and ahead of the other big four S&P/ASX 200 Index (ASX: XJO) bank stocks over the past year.
Despite slumping 2.6% to $149.68 in morning trade on Friday, CommBank shares are up more than 25% over 12 months. And that doesn't include the $4.75 a share in dividends Australia's biggest bank paid out (or shortly will) over the year.
For some context, the ASX 200 is up just over 3% over this same time.
But the strong outperformance of CBA shares has come with a price.
Namely, that CommBank continues to trade at an elevated price-to-earnings (P/E) ratio relative to its peers.
CBA trades on a P/E ratio of just under 27 times.
As for the other three big ASX 200 bank stocks, ANZ Group Holdings Ltd (ASX: ANZ) trades on a P/E ratio of just under 14 times; National Australia Bank Ltd (ASX: NAB) trades on a P/E ratio of around 15.5 times; and Westpac Banking Corp (ASX: WBC) trades on a P/E ratio of about 16.5 times.
And with a similar disparity when looking at forward earnings estimates, a growing cohort of analysts is expecting to see a big retrace in CBA shares.
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Are CBA shares set for a steep fall?
According to consensus analyst expectations and price targets compiled by Bloomberg, CBA shares now trade at 25 times forward earnings, which they point out is almost double the multiple of JPMorgan Chase & Co (NYSE: JPM).
With these elevated valuations coupled with increasing competition among the Aussie banks, the brokers' consensus expectations see CBA shares falling 26% over the next 12 months.
According to Matt Ingram, senior industry analyst at Bloomberg Intelligence:
CBA is now vying for the title of world's most expensive developed market bank at levels it's been historically unable to sustain. Its re-rating might reflect its improving profit outlook for 2025 but seems contrary to the growing rate-induced headwinds from 2026 onwards.
Morgan Stanley analyst Richard Wiles added:
The banks' latest results were not good enough to meet lofty expectations or to support elevated trading multiples. We retain our negative stance on the major banks and expect them to underperform [the ASX 200 in 2025].
Highlights from CBA's half-year results included a 6% year-on-year increase in statutory net profit after tax (NPAT) of $5.14 billion, which led to a 5% increase in the fully franked interim dividend to $2.25 per share.
And the bank continues to get strong support from superfunds and a number of prominent fund managers.
Ten Cap founder Jun Bei Liu counts among the fund managers who remain bullish on CBA, labelling it the "best quality bank".
"It may be one of the most expensive banks in the world. But the thing is, earnings are stable," said Liu, whose fund owns CBA shares.
