Source: PaxForex Premium Analytics Portal, Fundamental Insight
When the market offers you the chance to buy an industry-leading business with an iconic brand name on sale, you should never stop taking a closer look. One such example in the current market is the well-known financial services giant Goldman Sachs, whose stock is down 13% year-to-date and 22% from its 52-week high.
First, let's look at one of the main reasons for the decline in Goldman stock.
The stock fell in February because the well-known investment bank failed to meet earnings expectations in the last quarter. The main culprit behind the earnings decline was a 23% year-over-year increase in operating expenses, mostly due to higher salaries and employee compensation.
While seeing a large increase in operating expenses is not ideal, Goldman deserves some relief because, like many other companies, the bank had to raise salaries to retain employees in the face of the move to remote work, while the Great Dismissal led to unprecedented employee turnover and a sea change in employer-employee relations. Understandably, a company like Goldman went for a wage increase to retain talented workers in a competitive market, rather than find itself in the unenviable position that many other companies find themselves in, struggling to find enough workers and struggling to retain those they have.
Moreover, if this was a one-time blip in an unprecedented year, it could be a good buying opportunity as the company returns costs and revenues to their previous levels.
On the bright side, Goldman is taking the brand of its famed investment banking division and bringing it to the consumer market. Total loans on the Marcus consumer banking platform rose from $106.4 billion to $146.31 billion YoY, and CEO David Solomon said he expects consumer lending revenue to grow from $1.5 billion to $4 billion over the next two years.
Despite its short tenure in the business, Marcus is gaining serious momentum in the credit card business, a testament to the knowledge and expertise Goldman brings to the table and how its strong brand has helped it enter the consumer banking market. For example, in early 2022, Marcus acquired the General Motors co-branded card, which helps customers earn points on new GM vehicles and pay seven times the points for purchases at GM. The card was previously owned by Capital One, so this looks like a big win for Marcus over an established competitor. Marcus is also partnering with perhaps the most visible brand in the world, Apple, to launch a branded credit card.
While this is not yet a significant part of the company's business and it is too early to tell what its ultimate strategy will be, it is interesting to see how the 153-year-old bank is changing its stance on cryptocurrencies and starting to enter the market. Just two years ago, Goldman said cryptocurrency was not a real asset class, but in March 2022, the company made its first over-the-counter bitcoin trade, and it now has futures and derivatives trading departments for bitcoin and Ethereum. Goldman created a furor last month when it changed its branding by making it the main theme of Web3 and the metaverse. It's still very early in the story, but one can't help but like the fact that Goldman is running where the puck is flying, adapting to new opportunities. Moreover, given the strength of its prestigious brand (not to mention its high salary), there's no reason to think that Goldman can't attract the best and brightest minds in cryptocurrency to further develop its strategy here.
The financial services giant's stock looks like a bargain, no matter how you look at it. The stock is now trading at 5.6 times earnings, much cheaper than the broader stock market, and the ratio of share price to book value is just under 1.2. Book value is essentially the value that would remain if the company was liquidated and its assets distributed, so Goldman trades at a 20% premium to that low bar. Finally, a price-to-earnings-growth ratio of 0.5 means that Goldman also looks undervalued for a company with its earnings growth. In addition to this favorable valuation, Goldman also offers investors an additional bonus in the form of a 2.4% dividend yield.
Goldman Sachs is a global financial holding company that appears to be selling right now. And given the company's attractive valuation, growing consumer business, and nascent but intriguing entry into the cryptocurrency market, it looks like a solid buy.
As long as price is below 346.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 327.98
- Take Profit 1: 325.00
- Take Profit 2: 310.00
Alternative scenario:
If the level of 346.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 346.00
- Take Profit 1: 357.00
- Take Profit 2: 370.00
