This Thursday, the S&P/ASX 200 Index (ASX: XJO) and most ASX shares had a rather shaky day. At market close, the ASX 200 had given up its morning gains and finished in red territory, down 0.034% at 8,538.9 points.
Even so, the ASX is still pretty close to its all-time high of 8,615.1 points, which we saw back in February. In fact, as I pointed out earlier today, the ASX 200 would only need to rise by less than one percentage point to hit that level once again.
A market near all-time highs would understandably throw up some ASX share valuations that might be a tad optimistic. So today, in recognition that many investors like to buy shares when the market is running hot, let's talk about two ASX shares that I think are trading at prices that are a little too enthusiastic to warrant a long-term investment right now.
Two ASX shares that I think are overpriced right now
Wesfarmers Ltd (ASX: WES)
By any metric, Wesfarmers is a great ASX share. It is one of the most diversified businesses you can buy on our market, with operations ranging from industrial manufacturing to clothing and mining. However, its crown jewels remain its retail businesses, including OfficeWorks, Kmart, Target and, most importantly, Bunnings.
Wesfarmers has been a wonderful ASX share to own for decades. The company's astute capital management has resulted in steady share price growth and a strong and ever-increasing dividend. For these reasons, Wesfarmers is a core component of my stock portfolio.
However, the market seems to recognise this too, and enthusiastically so. Today, Wesfarmers commands a share price over $84. At this level, the company is trading on a price-to-earnings (P/E) ratio of 36.88, with a dividend yield of just 2.39%.
Wesfarmers has a bright future ahead of it, to be sure. However, this earnings multiple suggests it might enjoy double-digit earnings growth for the foreseeable future. That, in my view, is not likely. As a result, I think this ASX share price is almost wildly optimistic, and, as a result, I can't see myself buying any more shares anytime soon.
Commonwealth Bank of Australia (ASX: CBA)
Next up is an ASX share we all know and may or may not love. CBA is an Australian institution. Not only is it the largest bank in the country, in terms of both market capitalisation and market share, but it is also the largest public company, period.
Just this week, CBA shares broke the $180 threshold, valuing the company at more than $300 billion.
As with Wesfarmers, there's no denying CBA's underlying quality as an ASX share. It enjoys a lot of brand goodwill from the Australian public and has shown a tenacity and degree of operational excellence that its competitors can only dream of.
However, as Charlie Munger once said, "No matter how wonderful a business is, it's not worth an infinite price".
ASX experts are almost universally united in their view that CBA is wildly overvalued at its current valuations. Most put a fair price on this bank that is around 40% below where it currently sits.
Now, CBA might continue to push the limits of how much an ASX bank share can be worth, given its sheer size that pulls more and more passive dollars into its share price. However, with a very unbank-like dividend yield of 2.62% today, I think there is little point in jumping in right now.
