Are CBA shares worth considering in December?

Core Viewpoint - The Commonwealth Bank of Australia (CBA) share price is under scrutiny as investors attempt to establish a valuation for the bank amidst fluctuating market conditions [1][2]. Valuation Methods - The Price-to-Earnings (PE) ratio is a common method for valuing bank shares, comparing the share price to earnings per share [3][4]. - CBA's current share price is $151.41, with earnings per share of $5.63, resulting in a PE ratio of 26.9x, which is higher than the banking sector average of 18x [5]. - A sector-adjusted PE valuation for CBA, based on the average PE ratio, is calculated to be $100.80 [5]. Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a more robust valuation method for banks, using recent or forecasted dividends and a risk rate [6][7]. - The formula for DDM is Share price = full-year dividend / (risk rate – dividend growth rate), and it is advisable to calculate with various growth and risk assumptions [8]. - Using a blended growth rate and risk rate between 6% and 11%, the average valuation for CBA shares is $98.33, while an adjusted dividend payment valuation is $100.66 [10]. Gross Dividend Valuation - Considering fully franked dividends, the valuation based on a gross dividend payment of $6.80 results in a share price valuation of $143.80 [11]. Growth and Risk Rate Analysis - Different growth and risk rates yield varying valuations, with a 2% growth rate and a 6% risk rate resulting in a valuation of $119.00, while an 11% risk rate drops the valuation to $52.89 [12]. Additional Considerations - Investors should assess net interest margins, regulatory impacts on non-interest income, and the management team's effectiveness when analyzing CBA [13].