Canadian Banks – Which Big 5 Bank Stock is a Better Buy?

We take a look at the Big 5 Canadian banks to determine which stock has the best near-term growth potential

SmallCapPower | November 2, 2017: Riding on strong GDP growth of 4.5% in the first half of 2017, the Big 5 Canadian banks have risen sharply over the past three months, with TD Bank (TSX:TD) leading the pack at ~14%, followed by Royal Bank of Canada (TSX:RY) at 9.0%, Bank of Nova Scotia (TSX:BNS) at 7%, Bank of Montreal (TSX:BMO) at 6.2%, and Canadian Imperial Bank of Commerce (TSX:CM) at 5.3%. Considered one of the safest banking systems in the world, Canadian banks contribute 3.4% to the Canadian GDP and account for ~70% of the Canadian financial services sector total assets. The banking system in Canada is concentrated in the Big 5 banks, which account for more than 80% of total banking assets. These banks are massive financial institutions and attract a lot of institutional as well as retail investor interest. To help investors choose the best near-term growth prospects amongst the Big 5 banks, we analyze the three key financial metrics: Revenue Growth, EPS Growth, and Return on Equity.

Revenue growth

Since these five banks are big with sizeable revenues, investors should consider growth in revenues as a key metric than the absolute revenue figures. As can be seen in the charts below, RBC and TD are the top players in terms of revenues at $9.9 billion and $9.3 billion in 3Q17. In terms of revenue growth, RY tops the list with a CQGR (quarterly compounded growth rate) of 3.18%, followed by CIBC at 2.37%.  

Source: Bloomberg

Earnings per share

Earnings per share (EPS) is an important metric for equity holders as it is the part of net income attributable to all common shareholders. Diluted EPS adjusted for one-time earnings is the most appropriate for comparison purposes. TD ranks as the leader in EPS growth over the past eight quarters with a CQGR of 3.59%, followed by CIBC at 1.74%.

Return on Equity

Similar to EPS, Return on Equity (ROE) is an important metric for equity shareholders. ROE is a profitability measure that shows how efficiently the company is able to generate returns from shareholders equity. CIBC leads the list in ROE, followed by RBC.


CIBC tops overall ranking with leading position in ROE and second positions in Revenue and EPS growth metrics. RBC and TD both share the second spot overall with leading positions in Revenue growth and EPS growth, respectively. BNS and BMO are at the bottom of the list, with no leadership in any of the three metrics. Hence CIBC seems a better buy, at least in the short term, amongst the Big 5 banks in Canada.

To read our full disclosure, please click on the button below: