The CBA share price is outrunning the broader market over the past year. Here’s what you need to know…
The post Why the Commonwealth Bank (ASX:CBA) share price is beating the ASX 200 appeared first on The Motley Fool Australia. –
Shares in our biggest mortgage lender raced up around 40% when the top 200 shares benchmark added 25%.
The strong performance of the CBA share price also leaves the major miners in the dust. The BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price are lagging even as iron ore hit record highs.
Property market helps drive the CBA share price
There are a few tailwinds driving the CBA share price. The first is the strong rebound in the residential lending market.
This has two positive impacts on the bank. Firstly, demand for home loans (and bigger loans) is boosting its earnings.
Provisioning bolsters bank earnings
Secondly, the V-shaped housing recovery means that CBA can reduce its provisioning (cash buffer for potential bad debts).
The release of this cash buffer flows straight to the bank’s bottom line and is fuelling expectations that CBA will be upping its dividend.
The positive development is unique to CBA. Attentive ASX investors will note that the CBA share price is actually a laggard among the big four banks.
Should you worry that the CBA share price is lagging its peers?
The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is the best performer over the last 12-months. Its shares gained 53%, followed by National Australia Bank Ltd. (ASX: NAB) share price and Westpac Banking Corp (ASX: WBC) share price with 40%-plus gains each.
However, the other banks are just playing catch-up to the CBA share price. The bank performed more strongly than its peers right through the pandemic in early 2020.
This is because CBA has the best balance sheet of the group. During times of stress, that is the key thing ASX investors focus on.
Potential capital returns
This in turn means that CBA is the most likely big bank to undertake a capital return. I am not suggesting we will see one next month when it hands down its earnings results, but one can’t rule that out.
Further, CBA is winning market share from rivals as its loan book is growing ahead of the overall market.
That’s quite a feat given that CBA is already the biggest lender. It’s a lot harder to deliver percentage growth from a bigger base. The only recent blackmark against the CBA share price is the two IT outages it suffered. Not a good look for a bank that boasts to have the best technology in Australia.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, Rio Tinto Ltd., and Westpac Banking Corporation. Connect with me on Twitter @brenlau.
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.