Is this an 'emperor has no clothes' moment for Commonwealth Bank of Australia (ASX: CBA) shares?
The market seems to be considering that possibility today.
This morning, the ASX's largest bank stock revealed its latest earnings report, covering the full 2025 financial year.
As we covered earlier today, CBA reported a 7% increase in statutory net profit after tax to $10.13 billion for the 12 months to 30 June. Cash net profits after tax were up 4% to $10.25 billion, while the bank's net interest margin (NIM) increased by 9 basis points to 2.08%.
This all enabled CBA to announce a final dividend of $2.60 per share, fully franked. That's a 4% rise over last year's final dividend of $2.50 per share.
On the surface, these results look like an improvement for CBA. After all, the bank reported a 2% drop in cash net profits after tax this time last year to $9.84 billion. Over the subsequent 12 months, CBA shares have catapulted almost 30% higher.
So it was quite strange to see the market react with what looked like revulsion to these results today.
Yesterday, CBA shares closed at $178.80 each. But this morning, following the release of these results, the bank opened at $176.88 a share before plunging as low as $167.43, a drop worth 6.36% at the time. Investors have calmed down a little over the rest of the trading day thus far.
But even so, the Commonwealth Bank share price is, at the time of writing, still nursing a 4.9% loss at just over $170.
So what's gone so wrong? Well, it looks like this could indeed be an 'emperor's got no clothes' moment for the bank.
CBA shares plunge 6%, despite delivering better numbers
Before this session, to say that CBA shares were priced for perfection was arguably an understatement. Even after today's hefty drop, CBA is still trading on a price-to-earnings (P/E) ratio of over 30. That is almost unheard of for a bank, not just here on the ASX but globally.
It means that CBA is still almost twice as expensive as its closest ASX rival, Westpac Banking Corp (ASX: WBC), right now. Westpac shares are currently priced at an earnings multiple of 17.3.
CBA also has an extremely low dividend yield for an ASX bank, currently 2.8%.
At this kind of valuation, it could be argued that investors were pricing in double-digit earnings growth for the foreseeable future. That is certainly not what we got today.
Perhaps investors took today's numbers as an excuse to get some profits off the table. It doesn't take a lot of investors doing this to start a share price sell-off.
It's impossible to say whether this is just a temporary setback for CBA stock though, or the start of a reversion to the mean for its shares. CBA has been defying its critics for years now. Despite near-unanimous calls that the bank is overvalued, it rocketed around 90% between October 2023 and June 2025. Let's see what happens next.
