Goldman Sachs (GS) Hits All Time High: Is More Upside Left?

Zacks Equity Research
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The Goldman Sachs Group, Inc. GS shares hit all time high of $352.42 within the first hour of trading on Mar 15. The stock closed the day at $346.05, reflecting a return of 31.2%, so far this year. The shares have outpaced the industry and S&P 500’s growth of 26.1% and 5.3%, respectively.

Goldman is perhaps benefiting from the expectations of an accelerated recovery of the economy. The bullish sentiments can be attributed to steepening of the yield curve, extensive vaccination drive, stimulus packages and favorable economic data.

With the Federal Reserve likely to keep interest rates near-zero this year as well, banks are anticipated to benefit from rise in demand for loans in the coming days. Moreover, solid prospects, driven by revenue growth, efforts to diversify business and technology advancement seem to be the reasons for this stellar performance.

YTD Price Performance


Additionally, earnings estimates for this Zacks Rank #2 (Buy) stock has been witnessing upward revisions of late, reflecting analysts’ optimism regarding its growth potential. Over the past 30 days, the Zacks Consensus Estimate for Goldman’s 2021 and 2022 earnings has moved upward by 2.9% and 1.9%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So, will this bullish trend for Goldman continue for the rest of the year? Let’s check the company’s fundamentals before deciding.

Building on Digital Platforms: Goldman has been undertaking initiatives to boost its digital consumer lending unit, Marcus, launched in 2016 with an aim to diversify revenues and fund sources. Over time, Marcus has grown into a multiproduct platform with 4 million customers in the United States and the U.K. without the traditional brick-and-mortar branch model.

The company recently introduced an automated wealth management platform called Marcus Invest as part of a move to expand its suite of consumer financial offerings. Such technological advancements are likely to boost the bank’s consumer business.

Revenue Growth: Goldman’s revenues have seen a compounded annual growth rate of 9.7% over the last five years (2016–2020). This reflects impressive growth in fixed income, currency and commodities client execution and equities revenues along with rising investment banking revenues. Further, with underwriting business displaying strength and rise in industry-wide mergers and acquisitions transactions, revenue uptrend is expected to continue in the near term.

Strong Balance Sheet: Goldman’s diversifying efforts are well supported by strong balance sheet position. As of Dec 31, 2020, the company had a total debt worth $440 billion, which has declined over the past few quarters, and cash and cash equivalents of $406 billion. These will enable it to continue pursuing growth opportunities.

Earnings Strength: Goldman has witnessed 10.3% growth in earnings per share (EPS), over the last three to five years. Earnings are estimated to grow at the rate of 22% for 2021 compared with the industry average of 9.8%.

In addition, the company’s long-term (three–five years) estimated EPS growth rate of 19.2% promises rewards for investors, over the long run.

Stock Looks Undervalued: Goldman seems undervalued with respect to its respective price-to-earnings (P/E) (F1) and price-to-book (P/B) ratios. The company’s P/E ratio of 11.56 is below the industry average of 14.49. Its P/B ratio of 1.42 compares with 2.45 for the industry.

Further, the stock has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of A or B, when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.

Favorable Zacks Industry Rank: Goldman is part of that Zacks industry, which currently carries a Zacks Industry Rank #5 (placing it at the top 2% of more than 250 Zacks industries).

The Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Key Industry Picks

Morgan Stanley MS has witnessed an upward earnings estimate revision of 1.6% for 2021 over the past 30 days. This Zacks Rank #2 stock has jumped 29.6% over the past three months.

Interactive Brokers Group, Inc. IBKR current-year earnings estimates have risen 8.9% in 30 days’ time. Further, the company’s shares have appreciated 30.7% over the past three months. At present, it flaunts a Zacks Rank #1.

Raymond James Financial, Inc. RJF has witnessed an upward earnings estimate revision of 13.2% for 2021 over the past 60 days. This Zacks Rank #2 stock has jumped 26.9% over the past three months.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report

The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report

Morgan Stanley (MS) : Free Stock Analysis Report

Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report

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