After a strong performance in the last two years, several stocks across multiple sectors have experienced a pullback in valuations due to trade war escalations and sluggish consumer spending.
In April 2025, shares of Royal Bank of Canada (TSX:RY) are down 12% from all-time highs, allowing you to buy the dip and benefit from outsized gains as investor sentiment improves. So, let’s see where the TSX bank stock is in two years.
Is RBC stock a good buy right now?
Despite the ongoing drawdown, Royal Bank of Canada has returned 2,300% to shareholders since January 1995. After adjusting for dividend reinvestments, cumulative returns are closer to 7,000%.
With a market cap of $223 billion, RBC is the largest company trading on the TSX. During its 2025 Investor Day, the banking behemoth outlined an ambitious growth strategy. RBC aims to expand its leadership in Canada and increase its presence in other global markets.
RBC chief executive officer Dave MacKay outlined a plan targeting a premium RoE (return on equity) of +16% by 2027, with an upside target of +17% through the optimization of capital deployment.
The bank is pursuing growth across four strategic pillars:
- Increasing market share in Canada
- Expanding into global fee pools
- Executing a seamless U.S. operating model
- Leveraging data, scale, and AI investments
In fact, RBC expects to generate $700 million to $1 billion in enterprise value from artificial intelligence (AI) initiatives by 2027.
RBC targets growth across businesses
As the leading money-in franchise in Canada, RBC’s Personal Banking segment is targeting 2.4 million net new clients over the next five years while maintaining a strong 25% ROE.
The bank’s Commercial Banking business, now reported as a separate segment, holds the pole position in Canada with a 500+ basis point share lead over competitors and operates at an impressive 34% efficiency ratio.
In Capital Markets, RBC aims to increase its global market share from 2.1% to +2.5% in Global Markets and 2.3% to +2.75% in Investment Banking. It also plans to build its transaction banking capability, targeting over 350 clients and $50 billion in deposits.
In Wealth Management, RBC plans to add 600 new advisors in the U.S. over five years while targeting growth in AUA (assets under administration) to between $3.2 and $3.4 trillion and AUM (assets under management) to over $1.1 trillion, supporting a 29% pretax margin.
RBC aims to improve its RoE from 9% to 12% for its U.S. operations. Further, it expects efficiency ratio improvement from 83% to the low 70s by 2027, with a potential upside to 14% RoE through improved funding strategies and additional expense reductions.
Chief Financial Officer Catherine Gibson outlined a path to a 53% all-bank efficiency ratio by 2027, down from the historical 57%. The bank’s efficiency will be driven by improvements in U.S. operations, HSBC Canada synergies, and enhanced revenue productivity.
Additionally, RBC expects high single-digit growth in net interest income, excluding trading, over the next three years. It also hopes to benefit from its interest rate hedging strategy, with gross hedge revenue projected to increase by approximately $1.5 billion by 2027.
Is RBC stock undervalued?
Analysts tracking RBC stock expect adjusted earnings per share to grow from $12.09 in fiscal year 2024 (ended in October) to $14.43 in fiscal year 2026. If the bank stock is priced at 13 times trailing earnings, it should trade around $188 in April 2025, indicating an upside potential of almost 20% from current levels.
Moreover, the TSX stock pays shareholders an annual dividend of $5.92 per share, translating to a forward yield of 3.8%. These payouts are forecast to $6.40 per share in fiscal 2027.
Analysts tracking the RBC stock expect it to gain 17.9% from current levels, given consensus price targets.
