Commonwealth Bank of Australia (ASX: CBA) shares are back in the spotlight after Australia's largest bank posted a record $10.98 billion cash profit.
CBA handed down its FY26 result on 12 August.
The numbers themselves were solid.
However, the valuation debate that followed is where things get complicated.
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What CBA shares delivered in FY26
Cash net profit after tax came in at $10,982 million, up 7.1% on the prior year.
That is a record for the bank and an impressive outcome in a fiercely competitive lending market.
However, net interest margin slipped three basis points to 2.05%.
Mortgage competition also weighed on margins, though a better deposit mix and gains from the hedge portfolio largely offset the pressure.
Operating expenses rose 5.8% to $13,755 million, but income grew faster still.
That delivered positive operating leverage and pushed the cost-to-income ratio down 20 basis points to 45.5%.
Credit quality remains a bright spot.
The loan loss rate sat at just eight basis points, comfortably below the long-run average of around 25 basis points.
The CET1 capital ratio eased 30 basis points to 12.0%, largely because strong lending growth consumed capital.
Taken together, this was a result that showed the bank growing across all five of its core domestic products, while keeping a tight lid on both costs and bad debts, which is not an easy combination to pull off at this point in the cycle.
The dividend was lifted again
Shareholders were rewarded with a fully-franked final dividend of $2.70 per share.
That takes the full-year payout to $5.05, an increase of roughly 4%.
The 77% payout ratio sits mid-range within the board's 70% to 80% target band.
At the current share price, that equates to a trailing yield of about 2.8%.
Grossed up for franking credits, it is closer to 4%.
Are CBA shares too expensive?
This is the crux of the buy, hold, sell decision.
CBA shares closed the week at $178.92, giving the bank a market capitalisation of close to $300 billion.
That puts the stock on roughly 27 times FY26 cash earnings.
For context, that is a multiple usually reserved for fast-growing technology companies.
Commonwealth Bank grew cash profit by 7.1%.
It is an outstanding franchise with an unmatched deposit base, but mid-single-digit growth does not obviously justify that sort of premium.
Brokers have been almost uniformly bearish on the stock for some time.
The consensus 12-month price target across covering analysts sits below where the shares trade today.
Meanwhile, the Reserve Bank left the cash rate on hold at 4.35% on 11 August, warning that headline inflation is still too high.
Higher rates for longer help support bank margins, but they also keep the pressure on household borrowers.
It is also worth noting that CBA shares have historically traded at a premium to the other big four banks, and while that premium has always been defensible on the basis of returns and franchise quality, it has stretched a very long way beyond its own history over the past two years.
Foolish Takeaway
There is very little wrong with the underlying business.
CBA is well capitalised, superbly run, and its loan book is holding up better than most would have expected at a 4.35% cash rate.
The problem is the price you have to pay for it.
Paying 27 times earnings for mid-single-digit profit growth leaves almost no margin for error.
Existing holders have every reason to sit tight and keep collecting those franked dividends.
For new money, though, there may be better value opportunities elsewhere on the ASX right now.
