The Commonwealth Bank of Australia (ASX: CBA) share price is an important element of the ASX share market.
It's the biggest ASX bank share, the biggest household lender, a position in many retiree portfolios, a major position in big super's portfolios and the largest contributor to the Vanguard Australian Shares Index ETF (ASX: VAS). Many Australians are invested in it directly or indirectly.
It's clear that the last five years has been a good time to be a CBA shareholder. We're going to look at just how good.
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The great performance on the CBA share price
Commonwealth Bank has risen by approximately 94% in the last five years, as of the time of writing. That compares to a 25% rise for the S&P/ASX 200 Index (ASX: XJO). Clearly, CBA has smashed the ASX 200 this decade.
I wouldn't expect CBA to outperform the ASX 200 as much as that over the next five years.
If I had invested $10,000 in CBA shares five years ago, I would have been able to buy 111 CBA shares, with a bit of change left.
These days, if I invested $10,000 into CBA shares, I'd be able to buy 57 CBA shares, with some change. In other words, we'd only be able to buy close to half the number of shares today as five years ago. That makes sense, considering the CBA share price has close to doubled.
Why has Commonwealth Bank risen so much?
I think there are two key factors that would explain this huge gain for the bank.
Firstly, it has delivered a pleasing level of profit growth. The latest result from the ASX bank share was the FY26 half-year result.
In that recent report, the company revealed statutory net profit and cash net profit of approximately $5.4 billion. It was helped by lending and deposit volume growth in its core businesses. Commonwealth Bank also declared an interim dividend of $2.35 per share.
However, five years ago, CBA reported in its HY21 result that it generated $4.88 billion of statutory net profit and $3.89 billion of cash net profit. That result was impacted by the low interest rate environment and COVID-19 impacts. The HY21 interim dividend per share was $1.50 per share.
Therefore, over that five-year period, statutory net profit has risen 11%, while cash net profit has gone up around 40%. The dividend per share has increased 57% in that time.
So, in terms of the core profit generation (cash net profit), the profit growth does justify a rise in the CBA share price.
The rest of the rise in the CBA share price has essentially been the rise in the price/earnings (P/E) ratio because the market is valuing the bank's earnings at a much higher multiple.
According to the projection on Commsec, the CBA share price is valued at 26x FY26's estimated earnings. This is not too far off its all-time high in terms of the P/E ratio.
Time will tell how it performs over the next five years, but I'm not thinking of an ever-rising P/E ratio is likely, so profit growth will be key.
