Can Goldman Sachs Move Higher?

With shares of Goldman Sachs (NYSE:GS) trading around $159, 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 valuable investment services to consumers and companies worldwide.

Goldman Sachs Group Inc technology investment banker Anthony Noto, who helped orchestrate Twitter’s (NYSE:TWTR) successful IPO in November, is leaving and joining Coatue Management, according to a source familiar with the matter. Goldman said in a memo to employees that Noto is leaving the firm but did not mention his move to the hedge fund. It is unclear what role Noto, who won plaudits from Wall Street and Silicon Valley for leading the messaging service’s low-profile but smooth coming-out party, will play at Coatue. The source confirmed that Noto is joining the fund on condition of anonymity. His contacts and experience were deemed key to netting the Twitter win for Goldman after Morgan Stanley (NYSE:MS) snagged the much larger but far more troubled Facebook (NASDAQ:FB) IPO in 2012. Noto’s departure from Goldman comes just as China’s Alibaba is preparing what could the world’s largest technology IPO later this year. Goldman is helping manage the debut, along with Citigroup (NYSE:C), Credit Suisse Group AG (NYSE:CS), Deutsche Bank AG (NYSE:DB), JPMorgan Chase & Co (NYSE:JPM) and Morgan Stanley.

T = Technicals on the Stock Chart are Mixed

Goldman Sachs stock has not made significant progress over the last couple of quarters. However, the stock is currently trending higher and looks set to continue this path. 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 below its rising key averages which signal neutral to bearish price action in the near-term.

GS

Source: Thinkorswim

Taking a look at the implied volatility (red) 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

16.75%

0%

0%

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

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed 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?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-6.29%

-17.86%

1.05%

107.87%

Revenue Growth (Y-O-Y)

-7.55%

-4.92%

-19.51%

0.21%

Earnings Reaction

0.13%

-2%

-2.42%

-1.69%

Goldman Sachs has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about 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

-9.88%

-7.00%

-9.71%

-3.95%

-6.63%

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 technology investment banker Anthony Noto is leaving and joining Coatue Management. The stock has not made significant progress over the last couple of quarters, but is currently trending higher. Over the last four quarters, earnings have been mixed while revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, Goldman Sachs has been an average year-to-date performer. WAIT AND SEE what Goldman Sachs does next.

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