Royal Bank of Canada stock double-tops ahead of Q1 earnings

Royal Bank of Canada stock has been in an unstoppable bull run in the past few years and is now hovering at its all-time high. It has soared by 160% in the last five years, beating JPMorgan, which has jumped by over 133% in the same period. So, will the rally accelerate as the company publishes its results this week?

Royal Bank of Canada stock to react to first-quarter results 

RBC and other Canadian stocks have done well in the past few years. For example, TD Bank stock soared by 110%, while Bank of Montreal soared by over 128% in the last five years. Their performance was much better than the broader TSX Composite, which has jumped by 83% in the same period.

RBC, Canada’s biggest bank, has done better than other companies because of its business model, which includes operations in the United States and other countries.

It is also a major player in areas like wealth management, personal banking, capital markets, commercial banking, and insurance. This diversification helps it to generate substantial non-interest revenue, which is important as interest rates come down.

The most recent results showed that its net income jumped by 25% YoY to over $20.4 billion, making it the most profitable banks in the industry.

Its personal banking revenue jumped by 20%, helped by higher interest rates, while its wealth management rose by 25%. The other top segments, like insurance and capital markets, grew by over 10%, with the latter benefiting from the volatility in the equities, forex, and interest rates trading.

Analysts believe that the company's revenue and profits did well in the first quarter, helped by the key segments like wealth management and capital markets activity. The average estimate is that its revenue rose by 4.87% in the first quarter to over $17.5 billion. 

Its earnings per share are expected to grow from $3.62 to $3.84. Chances are that its business will be much better than expecte,d as it has always done. Also, most comparable American banks like Morgan Stanley and JPMorgan published modest results.

Analysts also expect that the annual revenue will be $70.4 billion this year, up by 5.75% from what it made last year. It will then make $73 billion next year, with the momentum expected to continue in the future.

Still, the main concern about RBC is that it has become highly expensive. Data shows that it has a trailing price-to-earnings ratio of 18, higher than JPMorgan’s 15 and Bank of America’s 13. Also, its price-to-book multiple of 2.7 is higher than other top banks, while the Bank of Canada has warned about the economy.

RBC stock price technical analysis 

Royal Bank of Canada stock chart | Source: TradingView 

The daily timeframe chart shows that the RBC stock price has been in a strong uptrend in the past few months.

Recently, however, there are signs that the momentum has faded in the past few weeks. It has formed a double-top pattern at $238.23 and a neckline at $224.

The stock has formed a bearish divergence pattern as the MACD indicator has moved downwards and is hovering near the zero line. Also, the Relative Strength Index (RSI) has dropped from the overbought level of 83 to the current 60.

Therefore, the double-top pattern points to a potential downside, in the near term. However, a move above the double-top pattern at $238 will invalidate the double-top pattern and point to more gains, potentially to $250.