2 easy ways to value the CBA share price

Core Viewpoint - The Commonwealth Bank of Australia (CBA) share price is currently trading at approximately $170.38, making it one of the most actively traded shares on the ASX, which is significant as ASX bank shares constitute about one-third of the Australian stock market by market capitalization and the All Ordinaries Index [1]. Valuation Methods - The Price-to-Earnings (PE) ratio for CBA is calculated to be 30.3x based on its current share price and earnings per share (EPS) of $5.63, which is notably higher than the banking sector average PE of 20x [4][5]. - A sector-adjusted PE valuation for CBA, using the sector average PE ratio, results in a valuation of $112.03 [5]. - The Dividend Discount Model (DDM) is highlighted as a robust method for valuing bank shares, assuming consistent dividend growth [6][7]. - Using the DDM formula, the valuation of CBA shares is estimated at $98.33 based on last year's dividend of $4.65, with an adjusted dividend payment leading to a valuation of $100.66 [10]. - When considering fully franked dividends, the valuation increases to $143.80 using a forecast gross dividend payment of $6.80 [11]. Growth and Risk Rates - Different growth and risk rates yield varying valuations for CBA shares, with a 2% growth rate and a 6% risk rate resulting in a valuation of $119.00, while a 4% growth rate and a 10% risk rate yield a valuation of $59.50 [12]. - Analysts are encouraged to conduct extensive qualitative research, including assessments of growth strategies, economic indicators, and consumer sentiment, before finalizing their valuation models [13].