Down by 3.43%: Is Royal Bank of Canada Stock a Buy?

As the largest Canadian bank by market capitalization and revenue, here’s a better look at whether RBC stock can be a buy, sell, or hold for investors right now.

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Boasting a $191.35 billion market capitalization, Toronto-based Royal Bank of Canada (TSX:RY) is the largest stock on the TSX by market cap. Also, the largest bank in Canada based on revenue, it only briefly lost its top spot on the TSX to Shopify before it fell from grace as quickly as it rose.

RBC also boasts a significant presence in international markets, with massive investment banking and operations in the U.S. and global wealth management.

Royal Bank of Canada recently completed the acquisition of HSBC Canada from HSBC. The massive deal will provide the largest Canadian bank with yet another boost to its revenues. In a deal worth $13.5 billion, the acquisition can generate around $680 million more revenue.

After making the most expensive acquisition in Canadian banking history, has RBC made a move that makes it a good investment? Today, we will see whether the stock is a buy, sell, or hold right now.

At a time when the S&P 500 banking index was trading at 10.5 times forward earnings, RBC paid HSBC for the acquisition at a staggering 19.85 times earnings. However, the Canadian banking giant’s management is confident it can slash costs by 55% to get more value out of HSBC Canada than its parent company ever could.

It will take time to see whether it can make good on its claims, but RBC might have several factors in its favor. The bank’s 12-month revenue is up 11% compared to the previous year, and its earnings have compounded by 5% for half a decade.


In the most recent quarter, Royal Bank of Canada stock managed to beat analyst expectations for its adjusted earnings and revenue. However, it did miss on reported earnings. The company’s revenue was up by 0.9% compared to the same quarter last year. Its reported earnings were up by 14%, but adjusted earnings were down by 5% in the same period.

Despite the growth not being as good as some of the other top banking stocks, the blue-chip Canadian bank stock did stay in green territory in its latest quarter. Since the bank finished an acquisition, RBC will likely see acquisition costs weigh on its financials in the next few quarters. Estimated to cost $1.5 billion in the second quarter alone, RBC might see its profitability decline for a while.

Foolish takeaway

As of this writing, Royal Bank of Canada stock trades for $135.93 per share. Trading at 12.03 times forward earnings and 3.37 times sales, RY stock is more expensive compared to some of its industry peers. The expenses to integrate HSBC Canada will likely hold back its profitability for several quarters to come.

If you are looking for a good deal to get quick returns by investing in the Canadian banking sector, Royal Bank of Canada stock might not be the best pick.

At current levels, it pays its shareholders their dividends at a 4.04% dividend yield. If you are an income-seeking investor with a long investment horizon, it can be an okay pick to add to your holdings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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