Commonwealth Bank (ASX:CBA) has been a wealth machine for decades, but a 19% share price plummet is forcing investors to reconsider what they’re really paying for.
When a bank that has spent years defying gravity suddenly stumbles, investors naturally look for meaning.
And the current Commonwealth Bank sell-off isn’t happening in a vacuum. It sits within a broader ASX 200 pullback, softer sentiment, and quarterly numbers that didn’t offer the growth narrative needed to support a world-leading valuation.
Yet one truth remains unchanged: Commonwealth Bank has been a generational wealth winner for those who bought years ago and simply let compounding do the heavy lifting.
No one can credibly argue against its track record. Over long periods, it has outperformed peers, delivered consistent dividends, and built a moat in distribution, customer acquisition, and brand confidence that rivals would dream of.
But history is not the same as opportunity. And today’s CBA is not the CBA of 2009 or 2020.
A world-class bank… with world-class valuation
For years, Commonwealth Bank has traded at valuation multiples that puzzled international investors. It regularly held the title of the world’s highest-valued major bank — at times more expensive than companies actually growing revenue and profit at tech-style rates.
And that’s the heart of the issue.
Banks aren’t designed to grow rapidly. They grow roughly in line with credit growth, population growth, and economic activity. Commonwealth Bank is a great bank — maybe the best in Australia — but it is still just a bank. Most of the loan book is mortgages. Margins compress. Competition rises. Costs creep. Regulatory capital sits like a ceiling.
So when the share price stretched to 28-30 times earnings, it didn’t take much to cause a rethink.
A slightly softer quarterly update and suddenly a premium that required a spotless narrative met reality.
How share prices grow and where CBA stands today
Every share price is ultimately driven by only two things:
- Earnings growth (EPS)
- Multiple expansion
Commonwealth Bank has benefited from both over the last decade or more. However, in 2024–2025, the second engine — multiple expansion — was doing most of the heavy lifting.
Earnings growth has been low-single-digit for years. Net interest margins have tightened. Even an exceptional franchise can’t escape the maths forever.
So when a premium valuation meets modest earnings growth, any disappointment can drive a sharp correction. That’s exactly what investors are seeing today.
Dividend seekers should tread carefully
Some investors justify buying Commonwealth Bank on dividends alone. But even here, context matters.
A 4%–ish fully-franked yield is solid, but not life-changing. Buying purely for the dividend while ignoring valuation means you risk capital for a return you could reasonably get from other high-quality dividend names at lower risk.
Banks don’t magically avoid cycles. Multiples can fall further. And unless earnings re-accelerate, share price gains will naturally slow.
Again — it is a great bank. It is just not a high-growth company.
Property strength helps, but doesn’t change the fundamentals
Commonwealth Bank’s mortgage-heavy book benefits from Australia’s seemingly unstoppable property market. Strong immigration, tight supply, record borrowing, and government support all keep housing buoyant.
But rising property values don’t automatically translate into outsized bank profits. Competition erodes margins.
Customers refinance aggressively. Regulators shape the playing field.
Commonwealth Bank’s premium valuation never came from home lending strength alone. It came from investors pricing it as an ultra-stable compounding machine. And while the business remains exceptionally sound, the expectations baked into the share price might have gotten ahead of economic reality.
Perspective for Raskies
For disciplined investors, this moment doesn’t require panic.
- CBA is still a high-quality bank.
- It will still be a core holding for millions of Australians.
- Its long-term wealth creation track record is exceptional.
- But quality and valuation are separate questions.
This pullback is sensible. It’s a cooling of a business that was priced as if mid-teens growth would return to a sector that structurally delivers mid-single-digits at best.
It doesn’t mean Commonwealth Bank is broken. It simply means the price is beginning to reflect the business more realistically.
For patient investors, opportunities may emerge. For income-focused holders, dividends will continue. For new buyers, the decision is more nuanced than “the share price is down.”
As always, thinking long term, understanding earnings, and staying rational tends to outperform emotion — especially during noisy periods like this.
