Commonwealth Bank of Australia (ASX: CBA) shares have been hotly covered over the past year or so.
It's been for a good reason. Australia's largest company hit record high after record high this year, reaching $192 in June.
It sits $50 billion clear of Australia's second-largest company with a market cap of $286.2 billion.
But since hitting record highs in late June, the CBA share price has dropped roughly 9%.
Additionally, Commonwealth Bank reported a near-flat profit result last week. The bank saw higher funding costs and slower lending growth pressure margins.
This resulted in a 5% tumble on August 13th.
So is this a chance to buy the dip? Or is this just the start of correction territory?
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What do the fundamentals say?
There are tools we can broadly use to determine a stock price.
One is the price-to-earnings ratio (P/E).
A share's P/E ratio tells you how much investors will pay per dollar of the company's earnings. It provides a standardised way to compare the prices of different shares by benchmarking their share price against their earnings.
At the time of writing, the CBA P/E ratio sits at roughly 28.2.
There's no hard and fast line that separates a good or bad P/E ratio or that indicates a share is cheap or expensive. However, investors generally consider stocks with P/E ratios of below 15 as cheap, while shares with a P/E ratio above 18 can be thought of as expensive.
This needs to be taken with a grain of salt, as CBA has proven time and again that investors are happy to scoop up shares despite a P/E ratio higher than 20.
What are experts saying?
Broker Macquarie sees CBA shares as significantly overvalued right now, describing the P/E ratio as "stretched."
The broker has a 12-month share price target of $105.
This is approximately 39% lower than yesterday's closing price.
It is forecasting fully franked dividends per share of $4.92 in FY 2026, $4.96 in FY 2027, and then $5.00 in FY 2028.
The team at Bell Potter also view CBA shares as overvalued, with a price target of $120.
This indicates a downside of roughly 30%.
