The Big Six Canadian bank stocks have enjoyed a breakout year, and shares of TD Bank (TSX:TD) have been one of the leaders of the group on the way higher. Undoubtedly, 2024 was a lost year, so to speak, for the big bank as the old CEO departed the bank at a difficult time in the company’s history. After a couple of great quarters (they were actually quite fantastic), the money-laundering fiasco seems to finally be behind the big bank.
And while there are some restrictions in place, especially regarding further expansion south of the border, it’s clear that the big bank has found a way to navigate the situation and march higher. Much of the outperformance this year, I think, is due to industry tailwinds, as well as the rock-bottom valuation that TD stock started the year with.
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TD Bank stock still cheap after an historic year of gains
Even after gaining close to 70% from the depths of last December, I still think there’s more room for upside, especially when you consider the price-to-earnings (P/E) multiple is still far lower than many of its peers in the space, currently sitting at just shy of the 11 times trailing P/E mark.
Is there still more multiple expansion in the cards? Most likely, especially as investors begin to appreciate TD Bank, not only as a well-run bank that’s on the ascent again, but a bank that’s deserving of a premium multiple.
In a number of prior pieces, I highlighted the stock’s absurdly low valuation compared to the peer group and the likelihood that prior company-specific headwinds (most notably the money-laundering woes of a few years ago) were overdone. Thus far, new CEO Raymond Chun has done a great job of making TD Bank a premier banking titan again.
Arguably, TD Bank has already shown it’s a premier bank again. Now, it just needs the multiple to reflect that. And I think it will in 2026.
TD Bank stock is on the growth track. There’s room to grow as it offers more tools and embraces commission-free products.
And while it seems like a good time to book a profit right here at a new high of nearly $126 per share, I still think the best has yet to come from the Chun era, especially as opportunistic investments in artificial intelligence (AI) finally save the company considerable sums.
Though it’s hard to tell where net interest margins (NIMs) go from here, I do think that recent initiatives (like offering commission-free ETFs on TD Direct Investing) could help the big bank gain serious market share in the Canadian retail investment market. Of course, it’d probably be better if all stocks and ETFs were commission-free.
But, in the meantime, TD Bank has gotten the message. And I think there’s some growth potential to be had in the brokerage business, especially as fees come down and more tools and services (think partial shares or share lending for passive income) come to be. The more value there is, the more market share I think TD Bank can gain.
And, of course, new investing customers might also be more easily sold on getting a TD credit card, a chequing and savings account, mortgages, loans, lines of credit, and all the sort. In short, I’m a fan of where TD is headed under what could be one of its best CEOs in recent memory. In my view, the stock is still way too cheap for its own good.
