The Commonwealth Bank of Australia (ASX: CBA) share price has gone through a significant reduction since 25 June 2025, falling by close to 10%, as the chart below shows. When quality businesses fall, it's worthwhile reviewing whether we think they are opportunities.
While the business valuation has reduced since June 2025, the recent decline on the above chart was triggered following its FY25 result. As investors go into reporting season, they are anticipating a certain amount of financial strength and growth from the business.
In many ways, CBA is a higher-quality bank than other names like National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and ANZ Group Holdings Ltd (ASX: ANZ). But, for CBA to justify trading at a significantly higher valuation, I think it needs to deliver stronger growth.
The CBA report highlighted a few things for me.
Image source: Getty Images
Negatives
The main negative for me after seeing the CBA FY25 result was how little underlying growth it generated considering its very high price-earnings (P/E) ratio.
It reported that its pre-provision profit only increased by 3% year over year to $15.47 billion, while the second half profit was flat compared to the first half. What multiple of earnings should the CBA share price trade at if there's no profit growth?
I'm not sure what the profit growth rate of the business will be in the coming years, but the FY25 figure was not enough to justify the valuation, in my opinion.
We don't know what the competitive landscape will look like in a year or two, but I think it could become more competitive than it has been in the last couple of years. This could be a headwind for the bank's net interest margin (NIM). I'm also expecting the NIM to decline as a result of RBA rate cuts, with a hit to what profit CBA can earn on transaction account money when it lends it out.
CBA also reported that its return on equity (ROE) fell by 10 basis points (0.10%) over the year to 13.5%. While the ROE isn't likely to increase every year, it's disappointing to see it declined. Hopefully that was a one-off, not part of a longer trend.
The final negative I'll highlight was a 6% increase in operating expenses because of inflation, accelerated investment in technology, and additional frontline lenders and operational resources, partly offset by productivity initiatives.
Positives about the CBA share price
The increase in investment is to accelerate the modernisation of its technology infrastructure and enhance its AI capabilities, which seems like a good initiative.
Next, CBA also reported a 9% decrease in its loan impairment expense, which is a sign of its credit quality. While it is wary of rising global trade and geopolitical tensions, economic conditions are improving in Australia for borrowers following rate cuts.
Another positive for owners of CBA shares was a 4% increase in the annual dividend per share to $4.85. A rising payout is attractive, though the current grossed-up dividend yield is just 4%, including franking credits.
I'm hopeful that a lower RBA interest rate could lead to stronger demand for credit, boosting demand for CBA's mortgages and business loans, as well as pushing growth higher.
Is it time to buy CBA shares?
It's more appealing than it has been for most of the last two months. However, it's still trading at 27x FY26's estimated earnings and more than 26x FY27's estimated earnings. In other words, it's priced highly, yet the profit is forecast to grow by less than 10% between FY25 and FY28.
CBA is a good bank, but there are plenty of other stocks I'd buy ahead of the bank.
