Can Goldman Sachs Continue Its Surge Higher?

With shares of Goldman Sachs (NYSE:GS) trading around $162, is GS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Goldman Sachs is engaged in investment banking, securities, and investment management. It provides a range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments, and high net worth individuals. The company operates in four segments: investment banking, institutional client services, investing and lending, and investment management. Through its segments, Goldman Sachs provides invaluable investment services to consumers and companies worldwide.

Recently, Goldman Sachs reported earnings and and revenue figures that beat the mean earnings per share analyst estimate by a significant amount. The company is still getting hammered with accusations of aluminum price manipulation, with the firm repeatedly accused of alleged dubious business methods in aiming to keep the price of the commodity artificially high, The Wall Street Journal reports. Viva Railings LLC and Regal Recycling Inc. have both started lawsuits against Goldman, alleging that the company hoarded aluminum.

T = Technicals on the Stock Chart are Strong

Goldman Sachs stock has been trending higher over the past couple of years. The stock is now trading slightly below highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Goldman Sachs is trading slightly above its rising key averages, which signals neutral to bullish price action in the near term.

GS

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Goldman Sachs options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Goldman Sachs Options

21.71%

13%

11%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of Friday, there is an average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Goldman Sachs’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Goldman Sachs look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

107.87%

9.44%

203.29%

439.29%

Revenue Growth (Y-O-Y)

0.21%

1.42%

52.69%

132.80%

Earnings Reaction

-1.69%

-1.61%

4.05%

-1.02%

Goldman Sachs has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from Goldman Sachs’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Goldman Sachs stock done relative to its peers – JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) — and sector?

Goldman Sachs

JPMorgan Chase

Citigroup

Morgan Stanley

Sector

Year-to-Date Return

27.77%

24.16%

29.93%

40.69%

25.74%

Goldman Sachs has been an average performer, year to date.

Conclusion

Goldman Sachs is a bellwether in the financial sector that strives to provide valuable financial products and services to consumers and businesses around the world. The company recently released a positive earnings report. However, it is still being accused of alleged aluminum price manipulation. The stock has been trending higher in the last couple of years and is now trading slightly below highs for the year. Over the last four quarters, investors in the company have expected a little more, although earnings and revenue figures have been rising. Relative to its peers and sector, Goldman Sachs has been an average year-to-date performer. Look for Goldman Sachs to OUTPERFORM.

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