Financial institution of Montreal (TSX:BMO) has been an investor’s dream to this point in 2025, delivering a complete return of about 28% yr to this point. This outpaces the Canadian banking sector’s 23% return (as measured by the BMO Equal Weight Banks Index ETF) and the broader market’s 18% return (utilizing the iShares S&P/TSX 60 Index ETF as a benchmark).
BMO inventory is outperforming however how lengthy can it final?
There’s little doubt this yr is a yr of energy for BMO. In truth, its 10-year compound annual development fee (CAGR) from 2014 to 2024 stands at roughly 12%, a strong long-term return for a serious monetary establishment. However whereas this short-term momentum is spectacular, it additionally raises an vital query: Is the inventory overheating?
Buyers should take into account that intervals of speedy development are sometimes adopted by stagnation or pullbacks. Simply because BMO is hovering in the present day doesn’t imply tomorrow’s returns will match. Those that leap in now threat shopping for close to the height of a efficiency cycle.
Timing issues: BMO’s roller-coaster experience because the pandemic
To spotlight how timing can have an effect on your returns, take into account this: BMO rallied roughly 140% between the COVID market backside in March 2020 and its peak in March 2022. That run was really extraordinary. However what occurred after? From March 2022 to September 2024, the inventory delivered a damaging CAGR of about 5%.
This illustrates an vital fact — buyers are sometimes higher off shopping for high quality shares like BMO during times of underperformance, not when there’s plenty of optimism. Whereas it’s straightforward to be swept up in in the present day’s bull run, historical past exhibits that future returns are likely to normalize — and typically disappoint — after a pointy rally.
Is BMO inventory costly proper now? All indicators level to “sure”
At round $174 per share, BMO now trades at a price-to-earnings (P/E) ratio of practically 15 — its highest valuation since 2010. Whereas some may argue that is justified by robust earnings (adjusted earnings per share (EPS) is up 14% yr to this point), that development fee is much above the financial institution’s long-term norm. Over the previous decade, its adjusted EPS development fee was simply 3.9% resulting from three years of an -11% to -18% EPS drop.
For long-term shareholders who purchased at decrease ranges, BMO stays a strong, dividend-paying blue-chip. However for brand new buyers? The present valuation seems wealthy. A pullback towards the $130–$146 vary would supply a way more affordable entry level with a greater margin of security.
Recession dangers and long-term resilience
Based in 1817, Financial institution of Montreal has develop into the seventh-largest financial institution in North America with $1.4 trillion in belongings and serving 13 million prospects globally. Its operations are well-diversified: 34% of income comes from Canadian private and industrial banking, 29% from U.S. private and industrial banking, 20% from capital markets, and 17% from wealth administration.
Nevertheless, BMO shouldn’t be recession-proof. Within the final two financial downturns — the 2020 pandemic and the 2008 monetary disaster — its inventory fell 37% and 60%, respectively, from peak to trough. The very best time to purchase BMO is commonly when concern is excessive, not when enthusiasm dominates.
Investor takeaway
When you’re a momentum dealer, there may nonetheless be short-term features forward. However for value-oriented buyers in search of long-term security and development, that is doubtless not the best time to purchase. Historical past is evident: BMO inventory performs greatest when bought throughout occasions of weak point, not energy.
Briefly, it’s too late to purchase BMO shares proper now — however it’s price maintaining in your watchlist for when the subsequent downturn hits.
