Toronto-Dominion Bank (TSX:TD) was one of the surprise TSX stock market winners last year, rising 70% in price and delivering a 76% total return. The stock achieved this feat despite the underlying company having faced many handicaps, such as a $430 billion asset cap in its U.S. retail segment.
TD Bank’s U.S. retail business was historically its main growth driver. The segment delivered high double-digit growth throughout the 2000s and 2010s. While most U.S. banks suffered lost decades in the aftermath of the 2008 financial crisis, TD powered right on through the systemic risks and outperformed the market in the first quarter of the 21st century.
When TD Bank had its assets capped by the U.S. Department of Justice (DoJ) in 2024, investors understandably got nervous. In fact, they got so nervous that they sold TD stock in massive volume, sending it all the way down to $74. It hit that low in December of 2024, right before the start of a new year. That fact was a big part of why TD outperformed the market by such a wide margin in 2025.
That brings us to today. We are heading into a new year, and the market is much pricier than it was at the start of 2025. Big tech companies are spending massive sums of money on AI infrastructure, with uncertain returns. This risky situation has led to volatile trading in the world’s biggest stocks. In such a market, it’s tempting to camp out in a stable, predictable bank like TD. But is it really the best move? In the ensuing paragraphs, I’ll explore whether TD Bank can outperform the market in 2026 as it did in 2025.
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Growth potential
One thing that TD does not have in 2026 is a ton of growth potential. The bank’s U.S. retail assets are capped, meaning no growth is possible in that segment. Its Canadian retail business faces possible net interest income (NII) margin compression due to falling interest rates. The company’s investment banking segment is growing, but it is too small as a percentage of the whole to move the needle for now.
Valuation
At today’s price, TD stock is valued about “on par with” its sector. At the time of this writing, it traded at 15.5 times adjusted earnings, 11 times reported earnings, a 3.5 price-to-sales ratio, and a 1.76 price-to-book ratio. These multiples are about average for large Canadian banks, but below average for the TSX. I’d call TD stock a solid “B” going by multiple-based valuation.
Value relative to opportunities
One area where TD still shines in 2026 is its value compared to other stocks in the opportunity set. U.S. big tech companies trade at high multiples while seeing their free cash flow (FCF) decline due to AI spending. Canadian utilities and telcos trade at higher multiples than TSX banks, on average, while doing worse in terms of growth and profitability. Energy stocks are volatile. Compared to this opportunity set, TD stock looks relatively attractive.
The bottom line
All in all, I think TD still has a shot at outperforming the market in 2026. However, this year’s outperformance, if it materializes, is likely to be more about TD holding steady in a bear market than about TD rallying out of control. It’s a pretty risky and pricey market on the whole.
