FEAR & GREED | Business News Q+A: Was CBA's tumble inevitable?
Nov 11, 2025
Commonwealth Bank shares took a significant hit, raising questions about whether this downturn was expected. Analysts discuss the complexities of price-to-earnings ratios and why CBA's valuation stands out among its peers. The conversation highlights how high expectations can lead to sharp sell-offs when results don't surpass what investors anticipated. Additionally, insights into market behaviors reveal how commentary from CEOs can influence stock prices more than the actual earnings reports. Tune in for a deep dive into banking valuations!
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PE Ratios Price Future Expectations
- Price-to-earnings (PE) ratios show how the market prices future earnings into today's share price.
- Commonwealth Bank's PE (~28.3) far exceeds peers, implying investors expect it to outperform materially.
Multiples Reflect Expected Future Winners
- Markets price similar companies at different multiples based on expected future performance.
- Sectors with limited future potential, like coal, trade on much lower PEs than growth sectors like tech.
Account For Passive Investing Distortions
- Understand passive investing's effect: large companies retain big index weightings and attract inflows.
- Do not assume index ownership prevents sharp pullbacks in richly priced stocks like CBA.