Can CBA shares beat the ASX 200 (XJO) in 2026?

Core Insights - The article discusses the valuation of Commonwealth Bank of Australia (CBA) shares, emphasizing the complexity of share price valuation despite its apparent simplicity [1][3][5] Valuation Methods - The Price-Earnings (PE) ratio is a common valuation metric, with CBA's current share price at $154.95 and an earnings per share (EPS) of $5.63, resulting in a PE ratio of 27.5x, compared to the banking sector average of 19x [3][5] - A sector-adjusted PE valuation for CBA is calculated at $104.48 based on the average PE ratio of the banking sector [5] - The Dividend Discount Model (DDM) is highlighted as a more robust method for valuing bank shares, given the consistency of dividends [6][7] DDM Valuation - The DDM formula used is Share price = full-year dividend / (risk rate – dividend growth rate), with last year's dividend payment of $4.65 assumed to grow consistently [8] - Valuations using different risk rates (6% to 11%) yield a range of share price valuations, with a base valuation of $98.33 and an adjusted valuation of $100.66 using an adjusted dividend payment of $4.76 [10] - A gross dividend payment forecast of $6.80 results in a valuation of $143.80 [11] Growth and Risk Analysis - The article presents a table showing various growth and risk rate combinations, indicating how these factors influence share price valuations [12] - It suggests that understanding the bank's growth strategy, such as focusing on interest income versus non-interest income, is crucial for investment considerations [12] - Economic indicators like unemployment, house prices, and consumer sentiment are also important for assessing the bank's future performance [13]