The fund manager Blackwattle has given investors some compelling insights into the Commonwealth Bank of Australia (ASX: CBA) share price amid the bank's recent quarterly results.
It has been hard to miss that over the past year, CBA shares have soared 40%, as the chart below shows. It's a monstrous return considering the S&P/ASX 200 Index (ASX: XJO) has only risen by 5.5% over the same time period (and CBA is the biggest constituent in the index).
But where to next for the bank?
The recent FY25 third-quarter update by the ASX bank share was fairly solid, with cash net profit after tax (NPAT) rising by 6% year over year to $2.6 billion. The quarterly $2.6 billion cash profit was flat compared to the FY25 first-half quarterly average.
Both the operating income and expenses rose 1% compared to the FY25 first-half quarterly average. The loan impairment expense was $223 million, with collective and individual provisions slightly higher. The bank also reported that borrower arrears slightly increased.
What should investors make of the current CBA share price valuation? Blackwattle had a number of comments to make on the ASX bank share.
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Who has been buying Commonwealth Bank?
Blackwattle pointed out that CBA now represents 11% of the ASX 200, which means it's benefiting from passive investing fund flows, such as exchange-traded funds (ETFs). Superannuation funds have also supposedly been major buyers of CBA shares in recent times.
Part of the reason that CBA is one of the largest banks in the world, with a market capitalisation of $287 billion (according to the ASX), is because of the CBA share price's price-earnings (P/E) ratio of 27. That means the business is trading at 27x the multiple of its profit generation, according to Blackwattle.
Is the CBA share price attractive?
One way to measure a business' attractiveness is to compare it to its peers in the same sector. CBA is the biggest bank in Australia, but comparable businesses exist in the UK and the USA.
Blackwattle noted that the average US bank P/E ratio is around 13, and it is less than 10 for UK banks. In other words, investors in CBA shares are paying more than twice as much for a dollar of profit as investors in US banks.
The fund manager said that while it respects CBA's market leadership, the CBA share price valuation suggests "limited upside and an asymmetrical investment risk profile."
Blackwattle concluded:
Given the significant re-rating of its valuation relative to earnings expectations, we remain confident that, over time, a fully priced valuation will lead to weaker forward returns. Historically, our experience has shown this to be the case—particularly when a stock reaches extreme valuation levels.
According to Commsec, of the 15 analyst ratings on CBA shares, 13 are sells, and only two are holds. In other words, professional investors are very negative on the ASX bank share, and better opportunities may be found elsewhere.
