Is Goldman Sachs Ready to Move Higher Post-Earnings?

With shares of Goldman Sachs (NYSE:GS) trading around $158, 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.

Goldman Sachs reported earnings recently with net revenues of $6.72 billion and net earnings of $1.52 billion for the third quarter ended September 30, 2013. “The third quarter’s results reflected a period of slow client activity,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Still, we saw various signs that our clients are prepared to act on significant transactions and we believe that the firm is well positioned to help our clients accomplish their objectives. As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery.”

T = Technicals on the Stock Chart Are Mixed

Goldman Sachs stock has made significant progress in the last several quarters. The stock is currently trading in a sideways range that has existed for most of 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 between its key averages, which signal 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

23.74%

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

November Options

Flat

Average

December Options

Flat

Average

As of today, 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 very small amount of call and put option contracts and are leaning neutral to bullish 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

1.05%

107.87%

9.44%

203.29%

Revenue Growth (Y-O-Y)

-19.51%

0.21%

1.42%

52.69%

Earnings Reaction

-2.47%*

-1.69%

-1.61%

4.05%

Goldman Sachs has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have not been pleased with Goldman Sachs’s recent earnings announcements.

* As of this writing

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

24.26%

23.04%

28.24%

49.79%

32.33%

Goldman Sachs has been an average 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. A recent earnings release does not have markets excited about the company. The stock has been moving higher in recent years but has been part of a range for most of this year. Over the last four quarters, earnings and revenues have been on the rise, however, investors have not been too happy with Goldman Sachs’s earnings announcements. Relative to its peers and sector, Goldman Sachs has been an average year-to-date performer. WAIT AND SEE what Goldman Sachs does this quarter.

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