Bank of Montreal (TSX: BMO) has been an investor’s dream so far in 2025, delivering a total return of about 28% year to date. This outpaces the Canadian banking sector’s 23% return (as measured by the BMO Equal Weight Banks Index ETF) and the broader market’s 18% return (using the iShares S&P/TSX 60 Index ETF as a benchmark).
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BMO stock is outperforming but how long can it last?
There’s no doubt this year is a year of strength for BMO. In fact, its 10-year compound annual growth rate (CAGR) from 2014 to 2024 stands at approximately 12%, a solid long-term return for a major financial institution. But while this short-term momentum is impressive, it also raises an important question: Is the stock overheating?
Investors must consider that periods of rapid growth are often followed by stagnation or pullbacks. Just because BMO is soaring today doesn’t mean tomorrow’s returns will match. Those who jump in now risk buying near the peak of a performance cycle.
Timing matters: BMO’s roller-coaster ride since the pandemic
To highlight how timing can affect your returns, consider this: BMO rallied roughly 140% between the COVID market bottom in March 2020 and its peak in March 2022. That run was truly extraordinary. But what happened after? From March 2022 to September 2024, the stock delivered a negative CAGR of about 5%.
This illustrates an important truth — investors are often better off buying quality stocks like BMO during periods of underperformance, not when there’s a lot of optimism. While it’s easy to be swept up in today’s bull run, history shows that future returns tend to normalize — and sometimes disappoint — after a sharp rally.
Is BMO stock expensive right now? All signs point to “yes”
At around $174 per share, BMO now trades at a price-to-earnings (P/E) ratio of nearly 15 — its highest valuation since 2010. While some might argue this is justified by strong earnings (adjusted earnings per share (EPS) is up 14% year to date), that growth rate is far above the bank’s long-term norm. Over the past decade, its adjusted EPS growth rate was just 3.9% due to three years of an -11% to -18% EPS drop.
For long-term shareholders who bought at lower levels, BMO remains a solid, dividend-paying blue-chip. But for new investors? The current valuation looks rich. A pullback toward the $130–$146 range would offer a much more reasonable entry point with a better margin of safety.
Recession risks and long-term resilience
Founded in 1817, Bank of Montreal has become the seventh-largest bank in North America with $1.4 trillion in assets and serving 13 million customers globally. Its operations are well-diversified: 34% of revenue comes from Canadian personal and commercial banking, 29% from U.S. personal and commercial banking, 20% from capital markets, and 17% from wealth management.
However, BMO is not recession-proof. In the last two economic downturns — the 2020 pandemic and the 2008 financial crisis — its stock fell 37% and 60%, respectively, from peak to trough. The best time to buy BMO is often when fear is high, not when enthusiasm dominates.
Investor takeaway
If you’re a momentum trader, there might still be short-term gains ahead. But for value-oriented investors seeking long-term safety and growth, this is likely not the ideal time to buy. History is clear: BMO stock performs best when purchased during times of weakness, not strength.
In short, it’s too late to buy BMO shares right now — but it’s worth keeping on your watchlist for when the next downturn hits.
