Should I Buy Commonwealth Bank Shares Today?

What Happened to Commonwealth Bank of Australia’s Share Price?

Shares in Australia’s biggest bank, Commonwealth Bank of Australia [ASX:CBA] took a slight breather today. The stock fell a little more than the rest of the Aussie stock market to close down 0.8% at $91.86. CBA shares remain close to the all-time high they achieved last week.

Why Did This Happen to CBA Shares?

This morning, CBA reported solid revenue and profit growth for the six months ending 31 December 2014. The $4.62 billion half-yearly profit was slightly better than the result analysts expected.

Hot competition in the home loan market squeezed CBA’s net interest margins, but that proved no obstacle to profit as the group posted a 6% gain in net interest income.

Most importantly for private investors, CBA said it would pay shareholders a $1.98 interim dividend. That’s up 8% from a year earlier.

Today’s result seemed a solid achievement, but the market seemed to be pricing in an absolute barnstorming half year of profit — which was always going to be a tough ask. That’s why the CBA share price fell a little today.

What Now for Commonwealth Bank of Australia?

With a market capitalisation of $149 billion, Commonwealth Bank is still by far Australia’s biggest listed company. Share investors view CBA as a safe store for their savings. That fact, and its exposure to the Aussie property sector, make it attractive for investors seeking ‘safe’ stocks.

But being a ‘safe’ investment has its drawbacks. Today’s price action showed that investors will expect the bank to continue growing revenue and profits. If it fails to do so, investors could punish CBA’s share price much harder than they did today.

For now, fears of a bubble in bank share valuations don’t seem to worry most investors. This stock still yields a fully franked dividend of around 4.5%, and now all the talk seems to be about how long it will take for CBA shares to reach $100 per share. CBA could well reach that milestone in the near future.

As I said earlier, Commonwealth Bank is a perennial favourite for investors seeking ‘safe’ shares. It could be a great stock for your portfolio. But if you’re seeking big potential rewards from exciting stocks that trade now for mere cents, go here to find out more.

Cheers, Tim Dohrmann
Small-Cap Analyst, Australian Small-Cap Investigator

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