Toronto-Dominion Bank (TSX:TD)(NYSE:TD) hasn’t had a very strong year so far, but it could end 2018 on a high note. It has been trading a bit low lately, but a strong Q4 performance could give the share price some much-needed momentum.
Last week, TD released its quarterly results, which continued to show impressive growth year over year. Revenue for the year was up over 9% and profits grew by a similar amount.
The bank came in ahead of what analysts were expecting for the quarter as it saw sales rise in its Canadian retail segment by 8.4%, while south of the border the increase in revenue was 12.5%.
Positive reaction from investors, but could be much more to come
The stock jumped on results to over $73, but given that it was at $80 just a few months ago, this could be just the start of a much bigger rally.
TD’s stock has normally traded at around 13 times its earnings and it hasn’t been at that level lately; it’s been a lot closer to 12. While that might seem trivial, when you factor in higher earnings per share (EPS), it could leave a lot of upside for the stock.
Over the last 12 months, TD’s EPS came in at $6.01. Multiplied by a price-to-earnings ratio of 13, that puts the stock at a value of over $78. However, that’s at a very tight multiple of 13, and it’s likely it could come in higher than that, which is why $80 could be in sight.
Markets have been weighing down quality stocks
Bank stocks and the markets as a whole have struggled over the recent weeks and there’s been a lot more selling than warranted, leaving stocks like TD’s trading at discounts to where they’ve normally been valued at.
Prior to the results, TD’s stock was down more than 10% from its peak and was barely above $70 per share. That’s pretty unusual for a stock that has normally provided investors with a lot more stability.
Nonetheless, it has created an opportunity for investors that are looking for a great price to own one of the top stocks on the TSX.
Why the stock could have more success to come
If the stock reaches $80, that could just be the start. as future quarters will likely continue to build on this strong performance and could result in even higher prices and perhaps justify stronger multiples.
The U.S. market is continuing to drive a lot of growth for TD and with the economy showing no signs of slowing down, it’s likely we’ll see that segment continue to produce strong results. Similarly, Canada has had multiple interest rate increases in response to a strong economy as well.
Why TD is a good buy today
While sooner or later it’s inevitable we’ll see a slowdown happen, for the time being, economic conditions remain strong, which is one good reason to invest in TD. Another reason, however, is that the stock is a proven winner and the best bank stock you can invest in on the TSX. It also pays a great dividend.
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Fool contributor David Jagielski has no position in any of the stocks mentioned.