The Commonwealth Bank of Australia (ASX: CBA) share price has risen strongly over the past five years.
Since this time in 2020, the banking giant's shares have risen a sizeable 91%.
In addition, during this time, Australia's largest bank has rewarded shareholders with 10 dividend payments.
Clearly, it was a smart move buying CBA's shares half a decade ago.
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Valuation looking stretched
Given this strong run, it may not come as a surprise to learn that most brokers believe that the CBA share price is overvalued now.
In fact, it has been described by some analysts as the most expensive bank in the world.
And while a premium is arguably justified due to its quality, the team at Bell Potter believes that its valuation is "disconnected from fundamentals."
Following a review of the banking sector, the broker has gone further underweight with its CBA holding. This makes the bank its largest active underweight position in its Core portfolio.
Commenting on the big four bank, Bell Potter said:
We are moving further Underweight in CBA, establishing it as our largest active underweight position in the Core portfolio. The bank's valuation premium has expanded to an extreme and, in our view, unsustainable level, trading at a P/E multiple that is ~40% above the peer average. While a premium for its high-quality franchise and strong returns is warranted, the current gap is disconnected from fundamentals.
Bell Potter believes that CBA's recent quarterly update didn't provide any justification for its lofty valuation and appears concerned that its valuation gap will close in the near future. It explains:
The recent 1Q26 trading update underscored this, revealing the bank is not immune to the sector-wide pressures of NIM attrition (from competition and deposit mix) and rising costs. CBA's result was "unremarkable" and showed a lack of differentiation versus peers. It faces the same wage and technology inflation as others, with its 1Q cost growth of 4% coming in a seasonally lower quarter for IT spend, implying costs will accelerate. With earnings momentum no better than its much cheaper rivals, we believe this valuation gap will continue to be under pressure.
The broker currently has a preference for ANZ Group Holdings Ltd (ASX: ANZ) on valuation grounds. It is the only bank that it has an overweight position in its Core portfolio. It adds:
We are moving to an overweight position in ANZ, which we see as the clear relative value proposition and our preferred holding in the sector. ANZ delivered the cleanest and highest-quality result of the recent reporting season, providing a tangible "self-help" story that NAB and CBA lack, while Westpac's is relatively priced in. The key differentiator was costs. Management's guidance for a 3% decline in the underlying cost base for FY26 is unique among the majors and provides a clear path to earnings growth, even in a flat revenue environment.
