Gaining 19% YTD, Where Is Goldman Sachs Stock Headed?

Goldman Sachs’ stock (NYSE: GS) has gained approximately 19% YTD as compared to an 11% rise in the S&P500 index over the same period. In comparison, Goldman Sachs’ peer Morgan Stanley (NYSE: MS) has seen its stock rise 6% over the same period. Overall, GS Stock is currently trading at $460 per share, which is 1% above its fair value of $455 – Trefis’ estimate for Goldman Sachs’ valuation. 

Amid the current financial backdrop, GS stock has seen extremely strong gains of 75% from levels of $265 in early January 2021 to around $460 now, vs. an increase of about 40% 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 JPM, V, 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 outperformed the street estimates in the first quarter of 2024. It posted net revenues of $14.2 billion – up 16% y-o-y, driven by a 15% increase in the global banking & markets division (including investment banking and sales & trading), an 18% rise in the asset & wealth management segment, and a 24% jump in the platform solutions unit. On the cost side, total expense as a % of revenues witnessed a favorable drop from 68.7% to 61%. Altogether, the adjusted net income improved 27% y-o-y to $3.9 billion.

The bank’s top line decreased 2% y-o-y to $46.25 billion in FY 2023. It was mainly because of lower global banking & market revenues – investment banking (down 16%), sales & trading (8%). However, the impact was somewhat offset by growth in asset & wealth management (4%), and platform solutions (58%) segments. In terms of costs, total expenses increased 11% y-o-y over the same period. All in all, the adjusted net income decreased $27% y-o-y to $7.9 billion.

Moving forward, we expect the second quarter results to be on similar lines. Overall, Goldman Sachs revenues are estimated to touch $51.85 billion in FY2024. Additionally, GS’ adjusted net income margin is likely to improve in the year, leading to an adjusted net income of $12.47 billion. This coupled with an annual GAAP EPS of $37.55 and a P/E multiple of just above 12x will lead to a valuation of $455.

[1] Returns as of 5/29/2024
[2] Cumulative total returns since the end of 2016

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