Will Goldman Sachs Break Out?

With shares of Goldman Sachs (NYSE:GS) trading around $148, 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 firm that 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 & Lending and Investment Management. Through its segments, Goldman Sachs provides invaluable investment services to consumers and companies worldwide. As a major piece in the expanding world economy, Goldman Sachs is poised to see increased activity as developing countries continue to grow and companies continue to flourish.

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T = Technicals on the Stock Chart are Mixed

Goldman Sachs stock has seen an explosive move higher in recent months but has bumped-up against a long-term downtrend. Should the stock successfully break above this long-term downtrend, a larger move may develop. 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 around its rising key averages which signal neutral to bullish 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

25.82%

33%

30%

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

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call or put buyers or sellers, neutral over the next two months. To summarize, investors are buying a small 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 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

9.44%

203.29%

439.29%

-3.78%

Revenue Growth (Y-O-Y)

1.42%

52.69%

132.8%

-8.98%

Earnings Reaction

-1.61%

4.05%

-1.02%

0.3%

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

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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

17.04%

9.90%

19.99%

22.33%

17.39%

Goldman Sachs has been a relative average performer, year-to-date.

Conclusion

Goldman Sachs provides essential financial services and products to growing consumers and businesses around the world. The stock has seen an excellent run in recent months but is now digesting its gains. Earnings and revenue figures have been generally increasing, although, investors have had mixed feelings about recent earnings reports. Relative to its peers and strong sector, Goldman Sachs has been an average performer, year-to-date. WAIT AND SEE what Goldman Sachs does this coming quarter.

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