Goldman Sachs Group has delivered a powerful 3 year share price run, yet with the stock now slipping back in recent weeks, the question is whether the market is still getting a fair deal on the returns the bank earns on its capital.
- Over the past 3 years the stock has gained about 208.2%, which puts real weight on the issue of whether that rise is backed by sustainably strong returns on the capital Goldman Sachs puts to work.
- Fresh headlines around record profit levels, heavy involvement in high profile deals and growing wealth management assets all feed into expectations for how efficiently the firm can keep converting its large capital base into earnings.
- If you'd rather focus on earnings, this one's for you. See what Goldman Sachs Group's 13.5x P/E says about the price.
The issue now is whether the current Goldman Sachs valuation is fully supported by the level and quality of returns the business is generating on its capital.
If you are weighing whether Goldman Sachs Group still offers a fair deal on the returns it earns on its capital, it can help to compare that picture with other 32 high quality undervalued stocks
Is Goldman Sachs Group a Bargain on Excess Returns?
The Excess Returns model starts by asking how effectively Goldman Sachs Group converts its equity base into profits above the return that shareholders require. On the inputs here, the business is assumed to earn stable earnings of $76.29 per share on a stable book value of $411.11 per share, supported by an average Return on Equity of 18.56%. Against an estimated cost of equity of $38.45 per share, that leaves an excess return of $37.84 per share and points to a meaningful spread between what the bank earns and what investors demand.
Book value today is set at $362.05 per share in the model, which implies room for that equity base to grow toward the higher stable book value estimate over time if analyst projections prove accurate. Because the same framework also captures dividend potential, the parallel dividend model output, with an estimated value stream of $367.02 per share based on a $20.75 per share dividend and 3.7% long run growth, acts as a cross check on those excess return assumptions. Despite the recent Q3 earnings beat and record advisory revenue helping sentiment, the Excess Returns view still places estimated intrinsic worth meaningfully above the current $891.91 share price. Find out what Goldman Sachs Group could be worth using our Excess Returns estimate.
The Goldman Sachs Group Narrative: What Would Justify Today's Price?
Goldman Sachs Group's Simply Wall St Narratives pick up where the valuation puzzle leaves off. They spell out which paths for growth, profitability and earnings would need to play out for the bank's shares to be worth materially more or less than the current price, and they sit on the firm's Community page. Rather than relying on a single multiple or model output, each scenario lays out its own fair value assumptions so you can later compare those to the numbers the group actually reports.
Bulls on Goldman Sachs focus on fee and financing compounding, while bears worry that rising costs and pressure on margins will bite harder.
Bull case: 20% undervalued
"Firmwide technology and AI investment, reflected in lower headcount even as revenues grow and in management commentary on AI and process reengineering increasing productivity, supports the earlier view that automation and cloud can create operating leverage and potentially improve net margins and earnings power..."
Discover why this Narrative puts Goldman Sachs Group at 20% undervalued.
Bear case: 6% overvalued
"Goldman Sachs faces long term earnings headwinds as rising digitization and the proliferation of fintech disruptors are expected to steadily erode the firm's margins across investment banking, trading, and wealth management, with digital first competitors and technology giants threatening to displace legacy offerings and compress fees..."
Explore why this Narrative puts Goldman Sachs Group at 6% overvalued.
For Goldman Sachs Group, one big question still hangs over the story
All the valuation work on Goldman Sachs Group still leaves one crucial angle unresolved, since our broader checks have flagged specific concerns that investors may want to weigh before drawing any conclusion. Take a closer look at 2 warning signs before settling on a valuation.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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