Is CIBC’s Recent 25% Rally Justified After Strong Quarterly Earnings Beat?

If you have your eye on Canadian Imperial Bank of Commerce right now, you are definitely not alone. With the stock closing at $113.88 and racking up some impressive returns over almost any time frame, it is no wonder investors are weighing their next move. Over the past week alone, the stock nudged up 2.7%, and over the past month, it climbed by 5.0%. Year to date, shares have soared by 25.9%. If you take a step back, the gains are even more striking, up 45.6% in the past year and 127.5% in three years. Long-term holders have seen their investment almost triple over five years, with returns of 187.3%.

What is driving this run? For one, many investors are taking a fresh look at bank stocks as economic conditions shift. Canadian Imperial Bank of Commerce is benefitting from broader market confidence, not just in the financial sector but in Canadian equities overall. With some market chatter pointing toward decreased risk perception across banks, it seems many are betting the worst may be behind us, or at the very least, that the risk-reward equation has gotten a little more favorable to the upside.

If you are wondering whether all this forward momentum means the stock is overbought or still undervalued, it pays to look at fundamentals. On that front, the company’s current value score sits at 3 out of 6, meaning it is undervalued in half the key valuation checks analysts use. Of course, there is more to the story than just a scorecard. Next, we will break down each valuation approach and, later on, explore an even smarter way to think about what Canadian Imperial Bank of Commerce is really worth.

Canadian Imperial Bank of Commerce delivered 45.6% returns over the last year. See how this stacks up to the rest of the Banks industry.

Approach 1: Canadian Imperial Bank of Commerce Excess Returns Analysis

The Excess Returns model focuses on how much value a company creates above its cost of equity capital. For Canadian Imperial Bank of Commerce, this model examines whether the bank is generating enough return on its investments to reward shareholders beyond what they could simply get elsewhere at comparable risk.

According to current estimates, Canadian Imperial Bank of Commerce has a book value of CA$65.52 per share and a stable projected earnings per share (EPS) of CA$9.37. The cost of equity is calculated at CA$4.72 per share, and with an excess return of CA$4.65 per share, the bank is producing significantly more than the required minimum expected by investors. The average return on equity is a robust 14.43%, indicating strong profitability. Analysts expect the stable book value to remain close, at CA$64.96 per share.

Based on the Excess Returns model, the estimated intrinsic value per share for Canadian Imperial Bank of Commerce is CA$164.57. Compared to the current market price of CA$113.88, the stock appears 30.8% undervalued by this methodology.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Canadian Imperial Bank of Commerce.

Our Excess Returns analysis suggests Canadian Imperial Bank of Commerce is undervalued by 30.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Canadian Imperial Bank of Commerce Price vs Earnings

The price-to-earnings (PE) ratio is widely regarded as a reliable valuation tool for profitable companies like Canadian Imperial Bank of Commerce. It offers a direct way to gauge how much investors are willing to pay for a dollar of the bank's current earnings, making it especially relevant when a company consistently turns a profit and has predictable earnings streams.

What constitutes a "normal" or fair PE ratio can vary. It generally depends on growth expectations and perceived risk. Companies expected to grow earnings rapidly can support higher PE ratios, while higher risks or slower growth would typically require a lower PE. Comparing Canadian Imperial Bank of Commerce’s PE ratio to key benchmarks helps put its current valuation in perspective.

At present, Canadian Imperial Bank of Commerce trades at a PE ratio of 13.55x. This compares to an industry average of 10.41x, and a peer average of 14.47x. Simply Wall St’s proprietary Fair Ratio for Canadian Imperial Bank of Commerce is 13.42x, which reflects a tailored assessment based on its earnings growth forecasts, industry position, profit margins, market size, and specific risk profile. The Fair Ratio aims to be more precise than a broad industry comparison as it considers factors that can materially impact a company’s appropriate valuation multiple.

With Canadian Imperial Bank of Commerce’s PE ratio sitting very close to its Fair Ratio, just 0.13x above, it appears the market is pricing the stock about right, neither significantly overvalued nor undervalued according to this metric.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Canadian Imperial Bank of Commerce Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives.

A Narrative is a simple and effective way for you to define your perspective on a company by linking its story, such as digital transformation or international growth, to concrete financial forecasts like future revenue, profit, or margins, and then translating that into an estimated fair value. Narratives take investing beyond numbers by letting you explain why you believe a company is worth a certain amount, capturing your unique view and assumptions in a format that is easy to build and adjust. On Simply Wall St's Community page, investors around the world use Narratives to express their take on Canadian Imperial Bank of Commerce, compare their fair value to the current price, and decide whether to buy, hold, or sell.

The best part is that Narratives update dynamically as new news or earnings come in, so your thinking can adapt as the facts change. For example, some investors see strong U.S. growth and digital leadership as the key drivers, giving the stock a bullish price target as high as CA$118.0. Others focus on mortgage risks and set a lower value near CA$78.0, so you can see how different stories yield different investment conclusions.

Do you think there's more to the story for Canadian Imperial Bank of Commerce? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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