Is Goldman Sachs a Safe Investment?

With shares of Goldman Sachs (NYSE:GS) trading around $163, 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.

CEO Lloyd Blankfein and the rest of his Goldman Sachs bankers can now resume talking in the elevator. The person behind the @GSElevator Twitter handle has been revealed as a 34-year-old former bond executive living in Texas named John Lefevre, according to a report in the New York Times. The Twitter account has more than 600,000 followers and the tweets were purportedly the uncensored conversations that have allegedly taken place inside the elevator at Goldman Sachs. Lefevre is not a Goldman Sachs employee but was offered a job that was later rescinded. He worked at Citigroup for seven years, according to the Times.

T = Technicals on the Stock Chart Are Mixed

Goldman Sachs stock has made significant progress in the last several quarters. The stock is currently trending higher and looks poised to continue. 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 between its rising key averages, which signals neutral 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

21.44%

33%

30%

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

March Options

Average

Average

April Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-17.86%

1.05%

107.87%

9.44%

Revenue Growth (Y-O-Y)

-4.92%

-19.51%

0.21%

1.42%

Earnings Reaction

-2%

-2.42%

-1.69%

-1.61%

Goldman Sachs has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been pleased with Goldman Sachs’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

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

Goldman Sachs

JPMorgan Chase

Citigroup

Morgan Stanley

Sector

Year-to-Date Return

-6.4%

-1.28%

-6.07%

-3.86%

-3.4%

Goldman Sachs has been a poor relative 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 stock has been moving higher in recent years and looks poised to continue. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Goldman Sachs has been a poor year-to-date performer. WAIT AND SEE what Goldman Sachs does next.

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