Will Goldman Sachs Continue Its Impressive Run?

With shares of The Goldman Sachs Company (NYSE:GS) trading at around $157.71, 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

If Goldman Sachs expects the stock market to continue its meteoric ascent over the next two years, then where is the insider buying? If the broader market performs well, then it’s expected that Goldman Sachs will perform well. And how does a gold $500/oz. call coincide with the stock market continuing its upward momentum?

All that said, does this matter when it comes to Goldman Sachs as an investment? No. Goldman Sachs recently beat expectations. Q1 profit was $2.26 billion compared to $2.11 billion for the same quarter one year earlier. Revenue was $10.09 billion compared to $9.95 billion one year earlier. However, on an annual basis, revenue has been inconsistent and earnings have been in decline. This should be somewhat expected, as Goldman Sachs isn’t as high-risk/high-reward as in the past.

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Goldman Sachs relies heavily on capital markets, M&A activity, and trading. It simply comes down to investor belief in equities, real estate, commodities, fixed income, etc. Recently, there has been a lot of talk about bubbles. There are strong opinions on both sides, but no one knows the answer for sure. If this is a bubble environment, then at least Goldman Sachs is highly diversified. This is also a company that has a strong track record with investments and divestments. Then again, if this is a bubble environment, then Goldman Sachs will lose a lot of potential revenue. The two big questions are:

Will Bernanke begin to slow monetary stimulus this year?

If so, will it impact markets?

At the moment, all segments are performing well for Goldman Sachs. The company culture is also impressive. According to Glassdoor.com, employees have rated their employer a 3.8 of 5, and 82 percent of employees would recommend the company to a friend. Even more impressive is that 92 percent of employees approve of CEO Lloyd C. Blankfein.

Goldman Sachs CEO Lloyd Blankfein stated:

“Our strong client franchise across our businesses drove generally solid results. Still, the potential for macro-economic instability was felt in the quarter and constrained overall corporate and investor activity. We continue to be very focused on controlling our costs and efficiently managing our capital.”

Now let’s get to some numbers. Below is a chart comparing basic fundamentals for Goldman Sachs, JPMorgan Chase & Co (NYSE:JPM), and Morgan Stanley (NYSE:MS).

Trailing P/E 10.91 9.54 46.78
Forward P/E 10.35 9.00 9.61
Profit Margin 22.23% 24.90% 4.11%
ROE 10.12% 11.55% 2.63%
Operating Cash Flow 3.40B 40.78B 21.15B
Dividend Yield 1.30% 2.90% 0.80%
Short Position 1.30% 1.20% 1.20%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

Goldman Sachs has performed exceptionally well over the past year. There has been no significant slowdown in momentum.

1 Month Year-To-Date 1 Year 3 Year
GS 13.20% 24.24% 64.68% 16.73%
JPM 12.89% 23.17% 61.76% 42.65%
MS 18.14% 28.25% 84.94% -7.52%

At $157.71, Goldman Sachs is trading well above its averages.

50-Day SMA 147.52
200-Day SMA 139.74
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E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Goldman Sachs is weaker than the industry average of 2.80.

Debt-To-Equity Cash Long-Term Debt
GS 6.01 822.32B 466.82B
JPM 0.00 954.87B 725.60B
MS 5.78 617.59B 407.69B

E = Earnings Have Been Weakening

Since 2009, annual earnings have only been heading in one direction, and annual revenue has been inconsistent.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 22,222 45,173 39,161 28,811 34,163
Diluted EPS ($) 4.47 22.13 13.18 4.51 0.00

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 9,949 6,627 10,144 9,236 10,090
Diluted EPS ($) 3.92 1.78 2.85 5.60 4.29

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?


Goldman Sachs is one of the most powerful and savviest operations on the planet. That being the case, there is potential in any economic environment. However, with the potential for a Bernanke unwind later in the year and no one knowing exactly how it will play out, near-term risks have increased. Therefore, Goldman Sachs is currently a WAIT AND SEE.

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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.