Over the past week, Commonwealth Bank of Australia (ASX: CBA) shares have retreated.
At the time of writing, they're changing hands for $177.88, representing a 7% decline from their peak of $192.
However, they're still up a staggering 41% over the past 12 months.
It's no secret that most analysts consider CBA shares materially overvalued.
Macquarie Group Ltd (ASX: MQG) has an underweight rating and price target of $105 on the stock. Most active fund managers are also underweight CBA shares.
Over the past two years, CBA shares have continued to defy expectations and reach new heights.
For the past 18 months, experts debated the likely catalyst that could see CBA shares return to 'fair value'.
Back in April, CBA shares fell 8% following the 'Liberation Day' fallout. However, they bounced back stronger than ever. In fact, since 7 April, they have gained a further 23%.
It's safe to say that CBA's journey to becoming the first ASX company to reach a market capitalisation of $300 billion and the most expensive banking stock in the world has puzzled experts.
Therefore, investors looking to understand CBA shares' dominant position must look to other sources of information and indicators.
Major CBA investor shares investment thesis
The Australian Financial Review recently reported on the thinking behind one major CBA investor, including why he's all in despite the ASX 200 bank stock's sky-high valuation.
According to the Australian Financial Review, Fisher Investments, a Texas asset manager run by American billionaire Ken Fisher, recently became a significant investor in CBA. In early June, Fisher spent $1 billion on CBA shares as the bank crossed the $300 billion market capitalisation milestone.
Fisher described Australia's current bond yield curve as the key reason behind his investment.
Fisher told the Australian Financial Review that he's "simply seeking lenders in countries where the yield curve is favourable", adding that Australia fits that criteria "just fine".
Australia's got a mild upward sloping yield curve at this point in time. So that justifies us saying: where do we have a bank where we think we'll do ok? And it's easy to pick out Commonwealth.
What about CBA's valuation?
Although Fisher did not directly address CBA's sky-high price-to-earnings (P/E) ratio (which is currently above 30), he shared some thoughts on valuation.
He said valuations shouldn't be followed too closely, suggesting there was no evidence that they impacted investment returns over the short term. He also clarified the 'short term' as being a period of up to five years.
Valuations are not predictive of where markets – or individual stocks – go over any timeframe that anybody actually cares about in the real world.
While this certainly isn't the view of most experts, it provides insight into the mind of one of CBA's most recent major backers.
