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Goldman Trades at a Discount to Industry: Buy, Sell or Hold?
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The Goldman Sachs Group, Inc. (GS - Free Report) stock looks attractive from its valuation perspective. The stock is trading at forward price/earnings (P/E) of 13.75X, a 3.1% discount compared with the industry average of 14.19X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
GS is also trading at a discount compared with its peer JPMorgan’s (JPM - Free Report) P/E multiple of 14.26X and Morgan Stanley’s (MS - Free Report) P/E multiple of 16.41X.
The Goldman stock is trading above its 50-day moving average, indicating a bullish sentiment among investors.
50-Day Moving Average
Image Source: Zacks Investment Research
GS’s lower valuation and bullish trends should lure investors seeking value. But is the time right to buy the shares based on the company’s attractive valuation? Let us delve deeper.
Global Deal-Making Revival & Less Regulation to Aid GS
The investment banking (IB) industry flourished in 2024 following a rebound in corporate debt, equity issuances and deal-making activities, which increased IB fees.
The macroeconomic environment is steadying driven by the interest rate-cut cycle globally and growing optimism for a soft landing of the U.S. economy. With this, underwriting, and merger and acquisition (M&A) activities are on the path to a sustained recovery in the coming days.
The Donald Trump administration is likely to be friendlier toward corporate mergers as the easing of some rules for big banks and more leniency in approving merger deals are expected. This will likely support Goldman’s IB performance. The IB business had been witnessing lackluster performance since 2022 and revived this year on the back of clarity on several macroeconomic factors.
In 2022 and 2023, GS’s IB revenues declined 47.9% and 15.5% year over year, respectively. However, a substantial improvement in the industry-wide deal value and volume in the first nine months of 2024 drove the global M&As. Hence, the company’s IB revenues jumped nearly 24% from the first nine months of 2023.
Goldman maintains its long-standing rank #1 in announced and completed M&As. With rising M&A deals and underwriting pipelines, the company’s decent IB backlog and leadership position lent it an edge over peers.
Goldman’s Efforts to Shift From Consumer Business
GS is moving away from consumer business and is refocusing on its core strengths of IB and trading operations.
Per the Wall Street Journal report, in November 2024, Apple proposed to Goldman to cease former credit card and savings account arrangements within the next 12-15 months. In October 2024, Goldman finalized a deal to transfer its GM credit card business to Barclays (BCS - Free Report) . Barclays will obtain the card program’s receivables from the company next year.
Earlier this year, Goldman completed the sale of GreenSky, its home-improvement lending platform, to a consortium of investors. Last year, the company sold its Personal Financial Management unit to Creative Planning.
These moves align with GS's decision to shift its focus on and grow core businesses wherein it has showcased encouraging results, given its strong leadership position, wide scale of operations and exceptional talent.
GS’s Impressive Capital Distribution
The company rewards its shareholders handsomely. In July 2024, it increased its common stock dividend by 9.1% to $3 per share. In the past five years, GS hiked dividends four times, with an annualized growth rate of 24.80%. Currently, its payout ratio sits at 35% of earnings.
The company enjoys a strong liquidity position. As of Sept. 30, 2024, cash and cash equivalents were $155 billion. As of the same date, $75 billion were near-term borrowings.
GS also has a share repurchase plan in place. In February 2023, it announced a share repurchase program, authorizing repurchases of up to $30 billion worth of common stock with no expiration date. As of Sept. 30, 2024, the company had the remaining $18 billion worth of shares available under authorization.
Given its decent liquidity position, the company’s capital distribution activities seem sustainable. This is likely to stoke investor confidence in the stock.
GS’s Private Equity Credit Line Expansion Provides an Edge
Goldman plans to ramp up its lending services to private equity and asset managers, and aims to expand internationally.
The private equity market has a strong growth potential as private equity deals are expected to rise, driven by record-high fundraising. These loans are classified as short-term, typically secured by the assets of borrowing firms. These have a lesser risk attached to them. Goldman’s focus on the private equity market is a strategic fit.
Goldman Asset Management — a unit of GS — intends to expand its private credit portfolio to $300 billion in five years. As of Sept. 30, 2024, the company has a private credit portfolio of more than $199 billion. Once the company strengthens its operations in the United States, it plans to expand its lending business in Europe, the U.K. and Asia. The company hopes private equity-led deals will bounce back at the end of this year and in 2025.
Goldman’s Estimates Favorable
The company is expected to deliver strong results in 2024 and 2025.
Earnings Estimates
Image Source: Zacks Investment Research
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Sales Estimates
Image Source: Zacks Investment Research
What Should Investors Do About GS Stock?
Shares of Goldman have appreciated 57% in the past year compared with the industry’s rally of 47.2% and S&P 500 index rise of 31%. The stock has also outperformed its peers, JPM and MS, in the same time frame.
Price Performance
Image Source: Zacks Investment Research
The company’s efforts to refocus on the IB and trading business provide a solid base for growth. GS's leadership position in announced and completed M&As gives it an edge over its peers.
The company’s strong liquidity and expansion in the private equity credit line positions it well for growth.
Given its favorable long-term prospects and lower valuation, investors might consider investing in Goldman’s stock now. Those who already have the stock in their portfolio can consider holding on to it for robust returns.
Image: Bigstock
Goldman Trades at a Discount to Industry: Buy, Sell or Hold?
The Goldman Sachs Group, Inc. (GS - Free Report) stock looks attractive from its valuation perspective. The stock is trading at forward price/earnings (P/E) of 13.75X, a 3.1% discount compared with the industry average of 14.19X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
GS is also trading at a discount compared with its peer JPMorgan’s (JPM - Free Report) P/E multiple of 14.26X and Morgan Stanley’s (MS - Free Report) P/E multiple of 16.41X.
The Goldman stock is trading above its 50-day moving average, indicating a bullish sentiment among investors.
50-Day Moving Average
Image Source: Zacks Investment Research
GS’s lower valuation and bullish trends should lure investors seeking value. But is the time right to buy the shares based on the company’s attractive valuation? Let us delve deeper.
Global Deal-Making Revival & Less Regulation to Aid GS
The investment banking (IB) industry flourished in 2024 following a rebound in corporate debt, equity issuances and deal-making activities, which increased IB fees.
The macroeconomic environment is steadying driven by the interest rate-cut cycle globally and growing optimism for a soft landing of the U.S. economy. With this, underwriting, and merger and acquisition (M&A) activities are on the path to a sustained recovery in the coming days.
The Donald Trump administration is likely to be friendlier toward corporate mergers as the easing of some rules for big banks and more leniency in approving merger deals are expected. This will likely support Goldman’s IB performance. The IB business had been witnessing lackluster performance since 2022 and revived this year on the back of clarity on several macroeconomic factors.
In 2022 and 2023, GS’s IB revenues declined 47.9% and 15.5% year over year, respectively. However, a substantial improvement in the industry-wide deal value and volume in the first nine months of 2024 drove the global M&As. Hence, the company’s IB revenues jumped nearly 24% from the first nine months of 2023.
Goldman maintains its long-standing rank #1 in announced and completed M&As. With rising M&A deals and underwriting pipelines, the company’s decent IB backlog and leadership position lent it an edge over peers.
Goldman’s Efforts to Shift From Consumer Business
GS is moving away from consumer business and is refocusing on its core strengths of IB and trading operations.
Per the Wall Street Journal report, in November 2024, Apple proposed to Goldman to cease former credit card and savings account arrangements within the next 12-15 months. In October 2024, Goldman finalized a deal to transfer its GM credit card business to Barclays (BCS - Free Report) . Barclays will obtain the card program’s receivables from the company next year.
Earlier this year, Goldman completed the sale of GreenSky, its home-improvement lending platform, to a consortium of investors. Last year, the company sold its Personal Financial Management unit to Creative Planning.
These moves align with GS's decision to shift its focus on and grow core businesses wherein it has showcased encouraging results, given its strong leadership position, wide scale of operations and exceptional talent.
GS’s Impressive Capital Distribution
The company rewards its shareholders handsomely. In July 2024, it increased its common stock dividend by 9.1% to $3 per share. In the past five years, GS hiked dividends four times, with an annualized growth rate of 24.80%. Currently, its payout ratio sits at 35% of earnings.
The company enjoys a strong liquidity position. As of Sept. 30, 2024, cash and cash equivalents were $155 billion. As of the same date, $75 billion were near-term borrowings.
GS also has a share repurchase plan in place. In February 2023, it announced a share repurchase program, authorizing repurchases of up to $30 billion worth of common stock with no expiration date. As of Sept. 30, 2024, the company had the remaining $18 billion worth of shares available under authorization.
Given its decent liquidity position, the company’s capital distribution activities seem sustainable. This is likely to stoke investor confidence in the stock.
GS’s Private Equity Credit Line Expansion Provides an Edge
Goldman plans to ramp up its lending services to private equity and asset managers, and aims to expand internationally.
The private equity market has a strong growth potential as private equity deals are expected to rise, driven by record-high fundraising. These loans are classified as short-term, typically secured by the assets of borrowing firms. These have a lesser risk attached to them. Goldman’s focus on the private equity market is a strategic fit.
Goldman Asset Management — a unit of GS — intends to expand its private credit portfolio to $300 billion in five years. As of Sept. 30, 2024, the company has a private credit portfolio of more than $199 billion. Once the company strengthens its operations in the United States, it plans to expand its lending business in Europe, the U.K. and Asia. The company hopes private equity-led deals will bounce back at the end of this year and in 2025.
Goldman’s Estimates Favorable
The company is expected to deliver strong results in 2024 and 2025.
Earnings Estimates
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Sales Estimates
What Should Investors Do About GS Stock?
Shares of Goldman have appreciated 57% in the past year compared with the industry’s rally of 47.2% and S&P 500 index rise of 31%. The stock has also outperformed its peers, JPM and MS, in the same time frame.
Price Performance
Image Source: Zacks Investment Research
The company’s efforts to refocus on the IB and trading business provide a solid base for growth. GS's leadership position in announced and completed M&As gives it an edge over its peers.
The company’s strong liquidity and expansion in the private equity credit line positions it well for growth.
Given its favorable long-term prospects and lower valuation, investors might consider investing in Goldman’s stock now. Those who already have the stock in their portfolio can consider holding on to it for robust returns.
GS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.