Valued at a market cap of $110.6 billion, Bank of Nova Scotia (TSX:BNS) is among the largest financial institutions globally. Over the last decade, BNS stock has returned 50% to shareholders, which may not seem particularly attractive. However, if we adjust for dividend reinvestments, cumulative returns are closer to 150%.
If we widen the investment horizon to 20 years, the TSX bank stock has returned 425% compared to the TSX Index, which is up “just” 283%. As past returns don’t matter much to current and future investors, let’s see if you should buy BNS stock right now.
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Should you buy, sell, or hold BNS stock right now?
Bank of Nova Scotia delivered impressive third-quarter results that exceeded expectations. In the quarter ended in July, BNS reported adjusted earnings of $2.5 billion, or $1.88 per share, representing a 15% year-over-year increase, while achieving a return on equity of 12.4%.
The Canadian bank’s strong performance reflects seven quarters of disciplined execution on its strategic transformation, shifting from volume-focused growth to value creation through deeper client relationships and balance sheet optimization.
The bank’s “primacy” strategy continues to gain traction across all business segments. Canadian Banking showed sequential improvement, with a two-basis-point margin expansion and solid growth in core deposits, as retail savings and day-to-day deposits increased by 6% year-over-year.
Management’s Mortgage Plus solution has proven highly successful, accounting for 90% of new mortgage originations and delivering stronger client retention and cross-selling results than traditional acquisitions. The segment reported 95% client retention after one year, with 30% of new clients opening credit cards.
International Banking delivered results ahead of Investor Day commitments, achieving a 15% return on equity, up 180 basis points year-over-year, while maintaining disciplined expense management despite inflationary pressures. The division has completed its two-year balance sheet optimization and client segmentation process, positioning it for the anticipated “pivot to growth” in 2026 as new value propositions roll out across key markets.
Strong global performance
Global Banking and Markets also reported exceptional results with earnings up 29% year-over-year. Despite reducing loan balances by 14%, the division achieved a 29% increase in pretax pre-provision earnings through strong trading revenues and record investment banking fees.
Credit quality improved notably, with the impaired PCL ratio declining to 51 basis points from 57 basis points in the prior quarter. Capital management remains disciplined, with the common equity Tier-1 ratio at 13.3%.
Management expects double-digit earnings growth to continue in fiscal 2026, driven by operating leverage across businesses and the transition from an optimization to a growth phase in key business lines.
The bank appears well-positioned to meet or exceed its medium-term financial targets while maintaining the flexibility to capitalize on emerging opportunities in its diversified international footprint.
Is BNS stock undervalued right now?
Analysts tracking the TSX stock forecast revenue to rise from $33.7 billion in fiscal 2024 (ended in October) to $40.2 billion in fiscal 2027. In this period, adjusted earnings are forecast to increase from $6.47 per share to $9 per share.
A widening earnings base will also enable the Canadian banking stock to raise its annual dividend from $4.24 per share in 2025 to $4.59 per share in 2027.
Currently, BNS stock is priced at 11.6 times forward earnings, which is higher than its 10-year average of 10.5 times. If BNS stock trades at 11 times earnings, it should be priced around $99 per share in early 2027, indicating an upside potential of 12%. If we adjust for dividends, total returns should be closer to 20%.
