Which Financial Stock is a Better Buy: Goldman Sachs or JPMorgan?

NYSE: GS | Goldman Sachs Group Inc. News, Ratings, and Charts

GS – Despite the continuing low interest rate environment, the financial sector is rebounding quickly, driven by a significant increase in financial transactions by businesses and individuals in the reopening economy. Established financial companies Goldman Sachs (GS) and JPMorgan (JPM) are well-positioned to capitalize on the industry tailwinds. But which of these two stocks is a better buy now? Read more to find out.

The Goldman Sachs Group, Inc. (GS) is an established financial institution that provides a range of financial services to corporations, financial institutions, governments, and individuals worldwide.  It operates through four segments—Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. JPMorgan Chase & Co. (JPM) is one of the largest financial services companies in the world. It operates in four segments: Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and Asset & Wealth Management.

Despite the unabated low interest rate environment, most financial sector stocks have been rallying this year, with the reopening of economic activities driving the non-interest-generating components of their businesses.  Even though benchmark interest rates are held near zero for now, the Fed has signaled two interest rate hikes as soon as late 2023, a year earlier than anticipated, and has raised its inflation forecast to 3.4%. This is good news for the financial sector because many financial stocks thrive with rising interest rates.

According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year. Consequently, GS and JPM are expected to deliver significant returns in the coming quarters.

GS’ stock price has gained 77.5% over the past year, while JPM’s returned 61.8%. Also, GS’ 72.6% gains over the past nine months are significantly higher than JPM’s 48.3% returns. Furthermore, in terms of their past six months’ performance, GS is the clear winner with 23.7% gains versus JPM’s 11%.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On April 13, GS announced that it intended to expand its footprint in the U.K. by opening a new office in Birmingham. Richard Gnodde, the company’s CEO said, “Establishing a new office in Birmingham will diversify our U.K. footprint and give us access to a broad and deep talent pool in the local area. We see tremendous opportunity to enhance our U.K. presence and continue delivering for our global clients.”

JPM announced on June 29, 2021, that it had entered  an agreement to acquire OpenInvest, a leading financial technology company that helps financial professionals customize and report on values-based investments. This is expected to expand the company’s portfolio of products and services in the sustainable investing space.

Recent Financial Results

GS’ net revenue increased 102% year-over-year to $17.70 billion for its fiscal first quarter ended March 31, 2021. The company’s pre-tax earnings grew 518% year-over-year to $8.30 billion, while its EPS came in at $18.60, up 498% year-over-year.

JPM’s net revenue increased 14% year-over-year to $33.12 billion for the first quarter ended March 31, 2021. Its net income grew 399% year-over-year to $14.30 billion. Its  EPS came in at $4.50, up 477% year-over-year.

Past and Expected Financial Performance

GS’ revenue and EPS have grown at 14.7% and 56.1% CAGRs, respectively, over the past three years. Analysts expect GS’ revenue to increase 23.2% for the quarter ended June 30, 2021, and 13.7% in its fiscal year 2021. The company’s EPS is expected to grow 1,737.7% for the quarter ended June 30, 2021, and 83.8% in its fiscal year 2021. Its  EPS is expected to grow at a 19.3% rate per annum over the next five years.

In comparison,  JPM’s revenue and EPS grew at CAGRs of 6.6% and 21.6%, respectively, over the past three years. The company’s revenue is expected to decrease 0.9% for the quarter ended June 30, 2021, and 1.6% in its fiscal year 2021. Its EPS is expected to grow 129.7% for the quarter ended June 30, 2021, and 48.6% in fiscal 2021. JPM’s EPS is expected to grow at a 3% rate per annum over the next five years.

Profitability

JPM’s trailing-12-month revenue is 2.30 times what GS generates. JPM is also more profitable,  with a 34.24% net income margin compared to GS’ 29.33%.

However, GS’ 15.64% and 1.26% respective  ROE and ROA are higher than JPM’s 14.97% and 1.19%.

Valuation

In terms of forward non-GAAP PEG, JPM is currently trading at 1.13x, which is 140.4% higher than GS’ 0.47x. Moreover, JPM’s 11.35x forward non-GAAP P/E ratio  is 44.6% higher than GS’ 7.85x.

So, GS is the more affordable stock.

POWR Ratings

GS has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. JPM, in comparison, , has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Both GS and JPM have B grades Growth, which is consistent with their impressive revenue and EPS growth over the past few years.

Of the 24 stocks in the B-rated Investment Brokerage industry, GS is ranked #8. However, JPM is ranked #3 of 11 stocks in the C-rated Money Center Banks industry.

Beyond what we’ve stated above, we have also rated both the stocks for Stability, Momentum, Sentiment, Value, and Quality. Click here to view all the GS Ratings. Get all the JPM ratings here.

The Winner

With increasing financial transactions and rebounding economic activities, the financial sector is expected to grow significantly in the near-term. While both GS and JPM are expected to gain, we think it is better to bet on GS now because of its better financials, relatively lower valuation and impressive growth prospects.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Investment Brokerage industry here. Also, click here to access all the top-rated stocks in the Money Center Banks industry.


GS shares were trading at $368.30 per share on Friday morning, up $9.36 (+2.61%). Year-to-date, GS has gained 40.68%, versus a 16.67% rise in the benchmark S&P 500 index during the same period.


About the Author: Nimesh Jaiswal


Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...


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