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Goldman Sachs Signals Growth Concerns in 2017

PART:
1 2 3 4 5
Part 4
Goldman Sachs Signals Growth Concerns in 2017 PART 4 OF 5

Goldman Sachs’s Valuations amid a Volatile Operating Performance

Stock performance

Goldman Sachs (GS) stock has risen by 25% over the past six months and 57% over the past year, reflecting strong investment banking and institutional services revenues on underwriting and trading activities. However, GS’s 1Q17 results saw a surprise decline in trading activity, which has traditionally been a major driver for the firm.

If the company sees consistent trends in the upcoming quarter, we’ll see lower estimates for 2017. The investment banking giant is expected to post EPS (earnings per share) of $19.27 in 2017, which would be a growth of 18.3% on a YoY (year-over-year) basis, mainly due to increasing institutional activity and trading expansion.

Goldman Sachs&#8217;s Valuations amid a Volatile Operating Performance

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Valuations

Goldman Sachs stock could see a revaluation in coming months on its weaker trading activity. The company is currently trading at a PB (price-to-book) valuation of 1.18x, as compared to the industry average (XLF) of 1.13x. It has traditionally commanded a higher premium than peers mainly due to its strong investment banking, institutional performance.

Goldman’s peers are trading at the following PB multiples:

  • Bank of America (BAC): 0.94x
  • JPMorgan Chase (JPM): 1.32x
  • Wells Fargo (WFC): 1.47x

On a one-year forward PE (price-to-earning) basis, Goldman Sach’s is trading at 10x, which is lower than the industry average and reflects its relatively weaker operating margins. The company will have to target higher trading revenues in coming quarters to continue garnering premium valuations.

We’ll explore the analyst ratings for GS and its peers in the next and final part of the series.

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