Goldman Sachs Group (NYSE:GS), on Tuesday, reported its Q3 earnings per share at $5.47, meeting market expectations. The group's book value rose to nearly $314 a share, up from Q2, which is in line with the InvestingPro Data which states the previous close price at $314.39. The stock price experienced a 1% dip to $311.38, just below its book value. Investors are eyeing potential in Goldman’s diverse franchise that includes investment banking business, trading operation, and Goldman Sachs Asset Management (GSAM).
The stock has seen a decrease of 10% this year, according to InvestingPro Data's YTD Price Total Return metric of -6.31%, lagging behind JPMorgan Chase (NYSE:JPM), Morgan Stanley, and the S&P 500. Yet it has outperformed most bank stocks that have seen an average plummet of nearly 25%. Goldman's shares might present a cost-effective opportunity for investors to profit from a potential resurgence in investment banking and the firm’s efforts to boost GSAM.
CEO David Solomon expressed cautious optimism during a results discussion call on Tuesday. He highlighted the "wider recovery in capital markets" and advancements within GSAM. The importance of book value at Goldman is emphasized by their balance sheet, which is largely made up of cash and marketable securities. The tangible book value, a more conservative measure of shareholder equity, stood at $292 a share by the end of Q3.
Notably, the company's management has been aggressively buying back shares, as per InvestingPro Tips, which may signal confidence in the company's future performance. Moreover, Goldman has raised its dividend for 11 consecutive years, reflecting a commitment to return capital to shareholders.
Goldman's low trading value can be attributed to its subpar returns and the correlation of financial stock valuations with these returns. The company reported a 7.1% return on equity in Q3 and 7.6% for the first nine months of 2023, about half the firm’s annual target of 14% to 16% ROE. In contrast, JPMorgan had an 18% return in the latest quarter and trades at a premium to Goldman at about 1.5 times book value.
Factors that reduced Goldman's return on equity in Q3 by about three percentage points include a $200 million loss in equity investments and losses associated with its exit from consumer businesses like the Greensky (NASDAQ:GSKY) consumer-lending platform.
Goldman’s Q3 profits were down 34% from the same period last year. The bank is projected to earn around $24 a share this year, down from $30 in 2022 and a record $59 in 2021. This aligns with InvestingPro Tips, which indicate a declining trend in earnings per share and an expectation of a drop in net income this year. On a positive note, Goldman reported unrealized losses on its bondholdings at about $2 billion at the end of Q2, which is significantly lower compared with over $100 billion at Bank of America.
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