The Commonwealth Bank of Australia (ASX: CBA) share price has dropped back recently, making it look cheaper. But has the ASX bank share fallen far enough to make it appealing?
As the chart above shows, the bank's value has declined 11% since 13 February 2025 and 5% since 3 April 2025.
Investors often call CBA shares expensive, partly because the bank is trading on a much higher price/earnings (P/E) ratio than National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ).
But, CBA has proven it can outperform other banks operationally, with good loan growth, a solid net interest margin (NIM), a resilient loan book and solid dividends.
So, let's look at what a good price for CBA shares could be.
What would be a fair price for Commonwealth Bank stock?
According to the (independent) forecasts on Commsec, the ASX bank share is valued at 23.5x FY25's estimated earnings. That is based on a forecast of possible earnings per share (EPS) of $6.31 in FY25. That's despite the bank's valuation falling.
But what would be a good P/E ratio?
According to Commsec, CBA shares traded on an average annual P/E ratio of 19.3x in FY24, 16.5x in FY23, 21.3x in FY22, 16.8x in FY21 and 17.8x in FY20.
Right now, the ASX bank share is trading at a higher P/E ratio than the average annual P/E ratio of each of the last five financial years.
If CBA were to trade at the same P/E ratio as FY24, the ASX bank share would drop to around $122, which would represent a decline of 18% from where it is today. If it were to drop to the FY20 P/E ratio, it'd mean the CBA share price would fall to $112.45.
In other words, it's trading at a high price compared to its historical price.
Is the CBA share price good value?
According to a collation of analyst ratings by Commsec, there are currently no buy ratings, two hold ratings and 12 sell ratings on CBA shares. That's a very pessimistic group of opinions on the ASX bank share.
The broker UBS has a price target of $115 on the business because of its high valuation and the fact that "better value and more upside can be found elsewhere." The broker suggested that CBA shares are unlikely to grow into the valuation in the near term.
UBS is suggesting CBA shares could fall by over 20% within the next year.
So, it seems Commonwealth Bank stock is widely considered unattractive at the moment.
