CBA share price at $161: here’s how I would value them

Core Viewpoint - The valuation of Commonwealth Bank of Australia (CBA) shares is a significant concern for investors, particularly those interested in dividend income, with current share price around $161 [1] Group 1: Investment Appeal of Bank Shares - Bank shares, including CBA, ANZ Banking Group, and Macquarie Group, are popular among Australian investors due to their stability and dividend offerings [2][3] - The Australian banking sector operates in an oligopoly, which provides a competitive advantage against foreign banks like HSBC [3] Group 2: Valuation Methods - The Price-Earnings (PE) ratio is a common valuation tool, comparing a company's share price to its earnings per share, with CBA's current PE ratio at 28.6 compared to the sector average of 19 [4][6] - A sector-adjusted PE valuation for CBA, based on the average PE ratio, results in a valuation of $105.59 [6] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a preferred method for valuing banks, relying on past or forecasted dividends and a risk rate [7][8] - Using last year's dividend of $4.65 and various growth and risk assumptions, the DDM yields a valuation range for CBA shares between $95.20 and $143.80, depending on the growth and risk rates applied [11][12][13]