The Goldman Sachs Empire Strikes Back

With shares of The Goldman Sachs Group (NYSE:GS) trading at around $141.41, 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:

C = Catalyst for the Stock’s Movement

Let’s get the title out of the way before getting started. Goldman Sachs is often referred to as an Empire because of its power and manipulative ways. Many people are highly confident that this is a company that has broken the law, defrauded clients, and manipulated markets to its advantage in the past. We all know about the sub-prime maneuver. In regards to power, not only did Goldman Sachs remain afloat during the financial crisis, but there are many strong beliefs that it took steps to eliminate competitors it didn’t like. In a moral and just world, this is terrible. In the real world, this makes Goldman Sachs an excellent investment. Look at the top players in any industry, such as Wal-Mart (NYSE:WMT), Amazon (NASDAQ:AMZN), and Apple (NASDAQ:AAPL). These companies didn’t get to where they were by being nice.

Goldman Sachs has been performing well over the past year, but this earnings report solidifies the fact that Goldman Sachs is almost back at full strength and will remain in its powerful position for many years to come.

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For FY2012, Goldman Sachs reported revenue of $34.16 billion. They didn’t tear the cover off the ball in this area, but EPS jumped to $14.13 compared to $4.51 in 2011. To say that’s a substantial improvement would be an understatement. For 2012, ROE was 10.7 percent. For Q4, revenue came in at $9.24 billion, which once again wasn’t tearing the cover off the ball. However, as you might have expected, EPS was impressive, coming in at $5.60.

Goldman Sachs was No. 1 in many areas for 2012 when it came to investment banking. This included completed mergers and acquisitions, and equity-related offerings and common stock offerings. Revenue for debt underwriting was $1.96 billion, which was the best performance in that area since 2007. Revenue for fixed income, currency, and commodities client execution came in at an impressive $9.91 billion. Goldman Sachs also saw strong results in mortgages, credit purchases, and interest rate products.

Let’s take a look at some more important numbers for Goldman Sachs.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Goldman Sachs might be near the industry average, but it’s still weak. However, the balance sheet is in good shape, and there is over $29 billion in operating cash flow.  

Debt-To-Equity

Cash

Long-Term Debt

GS

2.92

$429.85 Billion

$167.88 Billion

JPM

2.89

$886.78 Billion

$263.40 Billion

MS

2.62

$353.07 Billion

$168.44 Billion

 

T = Technicals on the Stock Chart Are Strong

Goldman Sachs has outperformed JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) over the past year.

1 Month

Year-To-Date

1 Year

3 Year

JOY

18.36%

10.76%

45.13%

-11.22%

DE

9.44%

6.55%

33.35%

13.27%

CAT

14.18%

7.79%

25.12%

-30.39%

 

At $141.41, Goldman Sachs is currently trading above all its averages.  

50-Day SMA

123.31

100-Day SMA

119.76

200-Day SMA

111.17

 

E = Earnings Have Been Inconsistent

As we now know, earnings aren’t a problem. Goldman Sachs is back on track. However, revenue still isn’t near what it used to be several years ago.

2007

2008

2009

2010

2011

Revenue ($)in billions

87.97

53.58

51.67

45.97

36.79

Diluted EPS ($)

24.73

4.47

22.13

13.18

4.51

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

5.86

8.02

11.80

8.59

10.14

Diluted EPS ($)

-0.84

1.94

3.92

1.78

2.85

T = Trends Support the Industry

Not only is the industry coming back, but there is much less competition than there was five years ago. This bodes well for Goldman Sachs, which is a company that was already well positioned to begin with.

Conclusion

Other than debt management, Goldman Sachs is impressive in every area. That takes us to valuation. Currently, Goldman Sachs has a Trailing P/E of 13.54, and a Forward P/E of 11.02. Therefore, the valuation is good. Let’s also not forget about dividend payments. Goldman Sachs currently yields 1.50 percent.

Goldman Sachs is an OUTPERFORM.

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