What a strange earnings season it’s been for Canada’s Big Six banks. We’ve seen some explosive moves, but for the most part, we’ve seen mostly muted moves, especially after the brief mini-scare (a slight dip in the big banks) going into this latest third-quarter (Q3) round of results.
Indeed, there was a very high bar set ahead of the banks this quarter, and I warned investors several weeks ago about “playing” the big banks going into their coming results. As it turned out, the banks didn’t even need to clock in numbers for their shares to start rolling downhill. Time will tell if this is the correction, but if you ask me, it’s an overdue one that shouldn’t make investors hit the panic button in the slightest.
The big bank stocks are very much worth a much higher multiple than they commanded in recent years. But the market is trying to figure out where the right spot is. In my view, the big banks probably shouldn’t go for just a few points just shy of 20 times trailing price-to-earnings (P/E), even as tailwinds linger, AI catalysts begin to work their magic, and managements look to make the most of the more favourable climate that they’ve been steered into in 2026.
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Royal Bank of Canada
For a top dog like Royal Bank of Canada (TSX: RY), I view the post-Q3 slide as nothing more than an opportunity to step in as a buyer, provided you’re in it for the next five years at minimum. Not much has changed about the bank’s powerful growth story.
With the name slipping 1.6% on a day it reported some excellent results, questions linger as to how the latest sell-off will conclude for the banking giant. Now down around 7.3% from its high, I think this is the correction that we’ve all been waiting for, but trying to time the bottom, in my view, is going to be tough, especially since investors won’t have that Q4 event to look forward to for another three months or so.
Could it be that the decent, but clearly not decent enough, quarter is the spark for a move lower, perhaps into a bear market? I have no idea, but even a 20% drop wouldn’t be a catastrophe, especially considering how far the shares have climbed. Personally, I’ll be waiting and watching for an entry point in the big Canadian banks, especially as capital rotates among the names.
I guess you could call Royal Bank of Canada a bit of a loser this Q3, at least when it comes to the investor reaction. If you look at the quarter itself, though, it was an incredible showing, with adjusted earnings per share topping estimates while the firm pretty much saw strength across the board. As has been the theme for the big banks this year, wealth management and capital markets have been strong points.
The bottom line on RY shares
As Royal Bank stays the top dog while making the most of the opportunity at hand in AI and across the market, I wouldn’t sleep on the name. It’s a robust dividend grower, and a good, if not great, Q3 doesn’t really change anything except the price investors will have to pay. At 18.4 times trailing P/E, I view Royal as still priced with a premium in mind. But that premium has become a whole lot less hefty in recent sessions.
