Trailing S&P500 By 18% Since The Start Of 2023, What To Expect From Goldman Sachs Stock?

Goldman Sachs’ stock (NYSE: GS) has gained approximately 12% since the start of 2023 as compared to the 30% rise in the S&P500 index over the same period. Further, at its current price of $385 per share, it is trading 8% below its fair value of $418 – Trefis’ estimate for Goldman Sachs’ valuation. 

Amid the current financial backdrop, GS stock has seen extremely strong gains of 45% from levels of $265 in early January 2021 to around $385 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in GS stock has been far from consistent. Returns for the stock were 45% in 2021, -10% in 2022, and 12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GS underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT.

 In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GS face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The investment bank surpassed the consensus estimates in the fourth quarter of 2023. It posted net revenues of $11.32 billion – up 7% y-o-y, primarily driven by a 12% growth in platform solutions, a 23% increase in the asset & wealth management division, and a 26% gain in equity trading. However, the top line was somewhat offset by a 12% drop in investment banking and a 24% decline in FICC (fixed income, currency, & commodity) trading. On the cost side, total expense as a % of revenues witnessed a favorable decrease, leading to a 58% jump in the adjusted net income to $1.87 billion. 

The bank’s top line decreased 2% y-o-y to $46.25 billion in FY 2023. It was mainly because of a 16% drop in investment banking and an 18% reduction in the FICC trading revenues. That said, the impact was partially offset by growth in other segments – equity trading (5%), asset & wealth management (4%), and platform solutions (58%). Further, the expense figure witnessed an unfavorable increase of 11% y-o-y over the same period. Altogether, the adjusted net income decreased by $27% y-o-y to $7.9 billion. 

Moving forward, we expect the same trend to continue in the first quarter. Overall, Goldman Sachs revenues are forecast to touch $50.4 billion in FY2024. Additionally, GS’ adjusted net income margin is likely to improve in the year, leading to an adjusted net income of $11.4 billion. This coupled with an annual GAAP EPS of $34.00 and a P/E multiple of just above 12x will lead to a valuation of $418.

[1] Returns as of 2/21/2024
[2] Cumulative total returns since the end of 2016

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