A Closer Look at Canadian Pacific Kansas City (TSX:CP) Valuation Following Strong Q2 2025 Results and Guidance Reaffirmation

Canadian Pacific Kansas City (TSX:CP) just delivered a steady Q2 2025, highlighting increased earnings, solid revenue growth, and ongoing cost controls. The company also reaffirmed its full-year outlook and kept investors' attention on its next moves.

See our latest analysis for Canadian Pacific Kansas City.

Canadian Pacific Kansas City’s latest quarter follows a year of resilience. While the 1-year total shareholder return dipped slightly by 1.5%, steady results and capital discipline have supported long-term momentum, delivering a healthy 39% total return for investors over five years. Recent community outreach efforts and share buybacks underscore the company’s commitment to operational strength and shareholder value, keeping the stock on the radar for growth-minded investors.

If you’re curious where else disciplined growth and smart management are paying off, broaden your search and discover fast growing stocks with high insider ownership

With gains driven by solid results and disciplined execution, the question now becomes whether Canadian Pacific Kansas City offers more upside from here, or if the market has already priced in that future growth potential.

Price-to-Earnings of 23.3x: Is it justified?

Canadian Pacific Kansas City’s shares are currently trading at a price-to-earnings ratio of 23.3 times, which places the stock at a premium to both its peer group and the estimated fair value multiple. With a last close of CA$106.24, the market appears to be assigning a higher valuation based on its current earnings power.

The price-to-earnings ratio (P/E) measures how much investors are willing to pay for each dollar of earnings. For established rail and logistics companies, this multiple often signals market expectations regarding future profitability, growth, and stability. A higher P/E can sometimes reflect investor optimism about future earnings acceleration or premium business quality, but it can also mean the stock is being priced for perfection.

At 23.3x, Canadian Pacific Kansas City's P/E is above the peer average of 20.1x and aligns exactly with the North American Transportation industry average. However, it is still higher than the estimated fair P/E of 19.5x, suggesting the market may be anticipating continued growth strength, or that the stock is simply expensive relative to likely future profits. If the market consensus shifts, the multiple could move closer to that fair benchmark.

Explore the SWS fair ratio for Canadian Pacific Kansas City

Result: Price-to-Earnings of 23.3x (OVERVALUED)

However, any signs of slowing revenue growth or market repricing could challenge the current valuation narrative and impact share performance in the future.

Find out about the key risks to this Canadian Pacific Kansas City narrative.

Another View: Discounted Cash Flow Suggests Undervaluation

While Canadian Pacific Kansas City appears expensive based on its earnings multiple, our DCF model suggests the stock could actually be undervalued. The current share price is about 14% below the model’s estimate of fair value. This offers a different perspective on what the company might be worth.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Canadian Pacific Kansas City for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Canadian Pacific Kansas City Narrative

If you’d rather take a hands-on approach or want to challenge these conclusions yourself, you can dig into the numbers and create your own perspective in just a few minutes. Do it your way

A great starting point for your Canadian Pacific Kansas City research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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