- If you are wondering whether Bank of Montreal’s rally has already played out or if there is still value on the table for new investors, you are not alone.
- The stock has climbed 27.2% over the past year and 27.5% year to date, with steady momentum of 0.8% over the last week and 2.8% across the past month. This suggests sentiment has tilted firmly toward optimism.
- Recently, investors have been reacting to a mix of macro signals and sector wide themes, from shifting expectations around interest rates to renewed attention on the resilience of Canadian banks. At the same time, coverage of Bank of Montreal’s expansion initiatives and focus on cross border growth has reinforced the idea that the bank could be positioned for structurally higher earnings power over the long haul.
- Despite that strength, Bank of Montreal only scores a 2/6 valuation check, which means it screens as undervalued on just a couple of our core metrics. Next we will unpack how different valuation methods view the stock, before circling back at the end to a more holistic way of thinking about what its price really implies.
Bank of Montreal scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Bank of Montreal Excess Returns Analysis
The Excess Returns model estimates what shareholders earn above the bank’s cost of equity, based on how efficiently management reinvests capital over time. It focuses on the spread between return on equity and the required return investors demand.
For Bank of Montreal, the model uses a Book Value of CA$122.02 per share and a Stable EPS of CA$14.61 per share, derived from weighted future return on equity estimates from 12 analysts. With an Average Return on Equity of 12.23% and a Cost of Equity of CA$8.66 per share, the bank is projected to generate an Excess Return of CA$5.95 per share, indicating meaningful value creation above its capital charge. A Stable Book Value of CA$119.50 per share, based on forecasts from 10 analysts, supports these earnings assumptions.
Combining these inputs, the Excess Returns model indicates an intrinsic value of about CA$251.76 per share. This suggests the stock may be roughly 29.2% undervalued relative to the current market price. In this framework, the market does not appear to be fully recognizing BMO’s ability to earn above its cost of equity.
Result: UNDERVALUED
Our Excess Returns analysis suggests Bank of Montreal is undervalued by 29.2%. Track this in your watchlist or portfolio, or discover 907 more undervalued stocks based on cash flows.
BMO Discounted Cash Flow as at Dec 2025
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Bank of Montreal.
Approach 2: Bank of Montreal Price vs Earnings
For a profitable, established bank like Bank of Montreal, the price to earnings ratio is a practical way to gauge how much investors are willing to pay for each dollar of current earnings. It naturally captures the market’s view on both the stability of profits and the sustainability of those earnings over time.
In general, faster growth and lower perceived risk justify a higher normal PE ratio, while slower growth or higher uncertainty warrant a discount. BMO currently trades at about 15.3x earnings, which is a premium to the broader Banks industry average of roughly 10.6x and slightly above the peer group average of around 14.8x. On the surface, that suggests investors are pricing in stronger prospects or lower risk than the typical bank.
Simply Wall St’s Fair Ratio adds another layer by estimating what BMO’s PE should be, based on its earnings growth outlook, risk profile, profit margins, size, and industry context. This is more targeted than a simple peer or industry comparison, because it adjusts for company specific characteristics rather than assuming all banks deserve the same multiple. For BMO, the Fair Ratio comes out at about 14.6x, just below today’s 15.3x. This implies the stock is trading modestly above what fundamentals alone might justify.
Result: OVERVALUED
TSX:BMO PE Ratio as at Dec 2025
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1452 companies where insiders are betting big on explosive growth.
Upgrade Your Decision Making: Choose your Bank of Montreal Narrative
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page where millions of investors connect a company’s story to their own financial forecast and a resulting fair value. They can then compare that to today’s price to decide whether to buy or sell. Each Narrative dynamically updates as fresh news or earnings arrive. For Bank of Montreal, one investor might build a bullish Narrative around accelerating U.S. growth, successful digital transformation and rising fee income to justify a fair value closer to the top analyst target of about CA$180. Another might focus on slower economic growth, higher credit costs and integration risks to anchor a more cautious fair value near the low end around CA$151. Narratives lets you transparently set your assumptions for revenue, earnings and margins, see how they translate into a fair value, and immediately understand what needs to go right or wrong for your story to play out.
Do you think there’s more to the story for Bank of Montreal? Head over to our Community to see what others are saying!
TSX:BMO Community Fair Values as at Dec 2025
This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.
Valuation is complex, but we’re here to simplify it.
Discover if Bank of Montreal might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
