Are CBA shares worth considering in January?

Core Viewpoint - The Commonwealth Bank of Australia (CBA) share price is under scrutiny as investors attempt to establish a rough valuation of the company, with various valuation methods being discussed [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]. - A comparative analysis of CBA's PE ratio against peers or sector averages can provide insights into its valuation [4]. - CBA's current share price is $160.57, with an earnings per share of $5.63, resulting in a PE ratio of 28.5x, which is higher than the banking sector average of 19x [5]. Dividend Valuation - The Dividend Discount Model (DDM) is a robust method for valuing banks, relying on past or forecasted dividends and a risk rate [6][7]. - The formula for DDM valuation 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 of CBA shares is estimated at $98.33, with an adjusted dividend payment leading to a valuation of $100.66 [10]. Adjusted 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 Analysis - A table outlines various growth and risk rates, showing how they affect the share price valuation, with significant variations based on these assumptions [12]. Additional Considerations - Investors should also consider whether investing in a low-cost, dividend-paying ETF may be more beneficial than individual bank shares [12]. - Key questions include the sustainability of net interest margins and the management of regulatory challenges in pursuit of non-interest income [13]. - The assessment of the management team's culture is also crucial for long-term investment decisions [13].