Shares of leading financial institution Goldman Sachs (GS) have gained 40.9% year-to-date thanks to its burgeoning investment banking division. However, analysts have voiced concerns about the company’s growth prospects for the coming year as the Fed plans to tighten monetary policy. So, is it worth adding the stock to your portfolio now? Let’s find out.
The world’s leading financial institution, Goldman Sachs Group Inc. (SG), offers a wide range of financial services in the areas of investment banking, securities, investment management and personal banking services to a large and diverse clientele that includes businesses, financial institutions, governments and individuals. Its action has gained 40.9% in progress since the beginning of the year thanks to various collaborations.
The company beat analysts’ revenue expectations 16.6% and their EPS estimates of 47%, supported by strong performance in mergers and acquisitions (M&A), as well as a dynamic market for initial public offerings (IPO).
However, management cited a few key factors that could affect the company’s revenue growth over the coming months, including the increased likelihood of monetary policy tightening in the near term due to inflationary pressures. This would tend to deter companies from engaging in M&A activity. Additionally, GS shares were down 4.1% in price over the past month due to a market sell off over growing concerns about the omicron COVID-19 variant.
Here’s what could shape GS’s performance in the short term:
Analysts forecast slower growth
Analysts expect the company’s growth to slow in the fourth quarter, with revenues expected to rise 2% year-on-year, while earnings per share fall 3%. Additionally, analysts are less optimistic about growth in 2022, predicting sales to fall 17.5%, while EPS will decline 32.7%.
Although GS has performed impressively this year, beating consensus estimates, its declining growth rate could be of concern to investors.
Impressive financial data
During the third quarter, ended September 30, 2021, GS’s net interest income increased 44% year-on-year to $ 1.56 billion. The company’s net profit rose 63% from its value a year ago to $ 5.38 billion, while its EPS rose 66% year-on-year to $ 14.92 . In addition, its common Tier 1 capital was $ 93.3 billion, an increase of 4.4% for the quarter ended September 30, 2021.
GS’s 89.5% gross profit margin is 40.1% higher than the industry average of 63.9%. In addition, its ROA and net income margin of 1.54% and 38.2%, respectively, are 13.2% and 27% higher than industry averages. In addition, its 12-month rolling CAPEX / Sales of 8.5% is 427.2% above the industry average of 1.62%.
However, the 0.1% of the last 12 months of GS asset turnover rate is 78.4% below the industry average of 0.21%. In addition, its operating cash flow was negative $ 7.69 billion compared to the industry average of $ 136.14 million.
In terms of a non-GAAP forward P / E, the stock is currently trading at 6.33x, which is 41.7% below the industry average of 10.86x. In addition, its non-GAAP PEG forward multiple of 0.66x is 30% below the industry average of 0.94x. And GS’s futures price / sell 2.16x is 33.8% lower than the industry average 3.27x.
POWR ratings reflect uncertainty
GS has an overall C rating, which equates to Neutral in our property POWR odds system. POWR scores are calculated taking into account 118 separate factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. GS has a C rating for stability and quality. The stock’s 1.51 beta is in sync with the stability rating. In addition, GS’s mixed profitability is consistent with its level of Quality.
Out of the 22 shares rated A Investment brokerage industry, GS is ranked # 16.
Beyond what I stated above, we can see the GS ratings for growth, value, momentum and sentiment. here.
The company reported strong results in its final quarter due to increased financial transactions and activity in the capital markets. However, given analysts’ expectations for slower growth in the coming months, we believe investors should wait until the outlook for GS stabilizes before investing in the stock.
How does Goldman Sachs Group Inc. (GS) compare to its peers?
Although GS has an overall grade of C, one might want to consider its industry peers, Manning & Napier Inc. (MN) and the Piper Sandler companies (PIPR), which have an overall A rating (strong buy).
GS shares rose $ 3.54 (+ 0.95%) in pre-market on Tuesday. Year-to-date, GS has gained 43.39%, compared to a 22.88% increase in the benchmark S&P 500 over the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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