Can Commonwealth Bank (ASX:CBA) Justify Its $190 Share Price? A Look Through ASX200 Lens

June 25, 2025 12:15 PM AEST | By Team Kalkine Media

Can Commonwealth Bank (ASX:CBA) Justify Its $190 Share Price? A Look Through ASX200 Lens — Image source: Shutterstock

Why Banks Like CBA Draw Investor Attention

CBA belongs to Australia’s tightly-knit banking sector, often considered an oligopoly due to the dominance of a few large institutions. Investors often find the financial sector attractive, particularly for consistent dividend income. Alongside Commonwealth Bank, other giants like ANZ Group Holdings (ASX:ANZ) and Macquarie Group Ltd (ASX:MQG) also feature prominently on investor watchlists.

Valuation Using Sector PE Comparison

One common method for valuation is comparing the Price-to-Earnings (PE) ratio. As of the latest data, CBA's earnings per share (EPS) stood at $5.63. At a share price of $190.04, this gives CBA a PE ratio of 33.8x. In contrast, the average PE ratio for the broader banking sector is around 19x. When applying the sector average PE to CBA's EPS, the implied value would be approximately $109.58 per share. This significant gap suggests the current price might be above fair value based on peer comparisons.

Dividend Valuation Perspective

For income-focused investors, the Dividend Discount Model (DDM) offers another viewpoint. Using CBA’s most recent full-year dividend of $4.65 and factoring in standard risk and growth assumptions, the valuation estimate is $98.33. Adjusting the dividend slightly to $4.76 bumps the estimate to $100.66. Factoring in franking credits, the grossed-up dividend estimate is around $6.80, which would justify a higher value of approximately $143.80.

This model shows that unless one heavily values the franking benefits, the current share price still appears significantly higher than multiple valuation approaches suggest.

Final Thoughts on CBA’s Premium Price

While valuation models are insightful, they represent only a part of the picture. Investors considering (CBA) must look at broader dynamics like economic indicators, the bank’s revenue mix, and management strategy. Whether CBA’s premium valuation is sustainable will depend on how it navigates growth in both interest income and fee-based services.

As one of the top-tier ASX200 index, CBA remains a central figure in the portfolio considerations of many Australian investors, but its valuation metrics highlight the importance of deeper analysis before making any investment decision.

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