Goldman Sachs Is Trading at Discount to Peers


Feb. 21 2018, Updated 9:00 a.m. ET

Stock performance

Goldman Sachs (GS) stock has risen 15.4% over the past six months and 5.4% over the past year. Lower taxes could improve its cash flows and leave excess cash on hand to possibly invest in opportunities that could increase its revenues.

Banks (XLF) have grown considerably in 2017 across the segments, despite poor market conditions and slower trading activity in the second half of 2017. However, going into 2018 with interest rates expected to rise, there could be hurdles in credit offtake. Since valuations are at a record high, asset management activity is also expected to slow down.

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In 4Q17, Goldman Sachs had a book value per common share of $181 and a tangible book value per common share of $170.61. The new tax legislation reduced its book value per common share by $11.31.

GS is now trading at a price-to-book value of 1.21x. It’s trading at a discount to its peers, including Bank of America (BAC), JPMorgan Chase (JPM), and Morgan Stanley (MS), which have ratios of 1.23x, 1.54x, and 1.26x, respectively.

This low valuation compared to its peers is due to the ongoing fall in revenues in its trading segment. It has assigned $1.5 billion in revenues to FICC (Fixed Income, Currency, and Commodities) and equities by further expanding its business and filtering the right opportunities.

GS had an ROE (return on equity) of 4.7% and a Tier 1 ratio of 12.1% in 4Q17, compared to 14.5% in 4Q16 and 13.3% in 3Q17. Tax legislation reduced its ratios to 0.8%.

Goldman Sachs’s total assets increased to $917 billion in 4Q17 compared to $860 billion in 4Q16 and $930 billion in 3Q17.


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