Toronto-Dominion Financial institution (TSX:TD) was one of many shock TSX inventory market winners final yr, rising 70% in value and delivering a 76% whole return. The inventory achieved this feat regardless of the underlying firm having confronted many handicaps, similar to a $430 billion asset cap in its U.S. retail section.
TD Financial institution’s U.S. retail enterprise was traditionally its important development driver. The section delivered excessive double-digit development all through the 2000s and 2010s. Whereas most U.S. banks suffered misplaced many years within the aftermath of the 2008 monetary disaster, TD powered proper on via the systemic dangers and outperformed the market within the first quarter of the twenty first century.
When TD Financial institution had its belongings capped by the U.S. Division of Justice (DoJ) in 2024, buyers understandably received nervous. Actually, they received so nervous that they offered TD inventory in huge quantity, sending all of it the best way right down to $74. It hit that low in December of 2024, proper earlier than the beginning of a brand new yr. That reality was an enormous a part of why TD outperformed the market by such a large margin in 2025.
That brings us to right this moment. We’re heading into a brand new yr, and the market is far pricier than it was in the beginning of 2025. Large tech corporations are spending huge sums of cash on AI infrastructure, with unsure returns. This dangerous scenario has led to risky buying and selling on the earth’s greatest shares. In such a market, it’s tempting to camp out in a steady, predictable financial institution like TD. However is it actually one of the best transfer? Within the ensuing paragraphs, I’ll discover whether or not TD Financial institution can outperform the market in 2026 because it did in 2025.
Development potential
One factor that TD doesn’t have in 2026 is a ton of development potential. The financial institution’s U.S. retail belongings are capped, that means no development is feasible in that section. Its Canadian retail enterprise faces attainable internet curiosity revenue (NII) margin compression because of falling rates of interest. The corporate’s funding banking section is rising, however it’s too small as a proportion of the entire to maneuver the needle for now.
Valuation
At right this moment’s value, TD inventory is valued about “on par with” its sector. On the time of this writing, it traded at 15.5 instances adjusted earnings, 11 instances reported earnings, a 3.5 price-to-sales ratio, and a 1.76 price-to-book ratio. These multiples are about common for big Canadian banks, however beneath common for the TSX. I’d name TD inventory a stable “B” going by multiple-based valuation.
Worth relative to alternatives
One space the place TD nonetheless shines in 2026 is its worth in comparison with different shares within the alternative set. U.S. large tech corporations commerce at excessive multiples whereas seeing their free money circulate (FCF) decline because of AI spending. Canadian utilities and telcos commerce at greater multiples than TSX banks, on common, whereas doing worse by way of development and profitability. Vitality shares are risky. In comparison with this chance set, TD inventory seems comparatively enticing.
The underside line
All in all, I believe TD nonetheless has a shot at outperforming the market in 2026. Nevertheless, this yr’s outperformance, if it materializes, is more likely to be extra about TD holding regular in a bear market than about TD rallying uncontrolled. It’s a reasonably dangerous and dear market on the entire.
