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, comparable to a $430 billion asset cap in its U.S. retail phase.
TD Financial institution’s U.S. retail enterprise was traditionally its primary progress driver. The phase delivered excessive double-digit progress 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 by means of 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, traders understandably acquired nervous. In reality, they acquired so nervous that they offered TD inventory in large quantity, sending all of it the best way all the way 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 immediately. We’re heading into a brand new yr, and the market is far pricier than it was at first of 2025. Massive tech corporations are spending large sums of cash on AI infrastructure, with unsure returns. This dangerous scenario has led to unstable buying and selling on this planet’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 the most effective 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.
Progress potential
One factor that TD doesn’t have in 2026 is a ton of progress potential. The financial institution’s U.S. retail belongings are capped, which means no progress is feasible in that phase. Its Canadian retail enterprise faces attainable web curiosity revenue (NII) margin compression attributable to falling rates of interest. The corporate’s funding banking phase is rising, however it’s too small as a share of the entire to maneuver the needle for now.
Valuation
At immediately’s value, TD inventory is valued about “on par with” its sector. On the time of this writing, it traded at 15.5 occasions adjusted earnings, 11 occasions 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 under 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. huge tech corporations commerce at excessive multiples whereas seeing their free money circulation (FCF) decline attributable to AI spending. Canadian utilities and telcos commerce at greater multiples than TSX banks, on common, whereas doing worse when it comes to progress and profitability. Vitality shares are unstable. In comparison with this chance set, TD inventory appears comparatively engaging.
The underside line
All in all, I believe TD nonetheless has a shot at outperforming the market in 2026. Nonetheless, 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 fairly dangerous and dear market on the entire.
