Investing in Commonwealth Bank of Australia (ASX: CBA) shares has been a rewarding choice over the long-term. Is it a good idea to invest $5,000 in the ASX bank share during July?
Is this a good time to invest in CBA?
The CBA share price has sunk 12% in the past year, making it noticeably cheaper for Australian investors. Over the long-term, it’s still up significantly, so long-term shareholders can be happy with the 66% rise in the past five years.
Commonwealth Bank is by far the leading ASX bank share in terms of market share, though it’s being challenged by Macquarie Group Ltd (ASX: MQG) who offers customers very competitive transaction accounts, savings accounts and loans. The Macquarie savings account has a high interest rate and essentially no tricky rules.
Should CBA match Macquarie’s generous savings accounts and sacrifice a significant portion of its margin? Or will CBA try to protect itself in other ways?
One of the best advantages it has is how it’s not as reliant on mortgage brokers for their loans as other banks like Macquarie, Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ) and so on.
In the first half of FY26, CBA said its proprietary home lending flow remained strong at 67%. That means around two thirds of its home loans came from channels it owns itself. That’s a great support for protecting CBA’s market position, without necessarily needing to offer the best rates to customers.
Will the ASX bank share see commoditisation of banking products and lower margins? Or can it protect and grow its earnings from here?
Earnings projection for Commonwealth Bank
The estimate on Commsec suggests the business could generate earnings per share (EPS) of $6.54 in the 2026 financial year, which suggests a possible profit increase in the mid-single-digits in percentage terms in FY26.
If that happens, it would mean the CBA share price is currently valued at more than 25x FY26’s projected profit.
After that, the FY27 EPS could slightly increase to $6.72, making the Commonwealth Bank share price valued at under 25x FY27’s estimated earnings.
It’s certainly one of the most stable businesses in the banking industry, but earnings growth seems limited in the foreseeable future, particularly after changes after the Australian Federal Budget which could hurt loan demand.
For me, CBA isn’t the best bet for long-term growth and its dividend yield isn’t high enough to be attractive. There are ASX dividend shares that look better value and have bigger dividend yields.
