Leading global financial institution, Goldman Sachs Group Inc. (GS), delivers a broad range of financial services across investment banking, securities, investment management, and consumer banking to a large and diversified client base that includes corporations, financial institutions, governments, and individuals. Its stock has gained 40.9% in price year-to-date on the back of various collaborations.

The company beat analysts’ expectations for revenues by 16.6% and their EPS estimates by 47%, backed by strong performance in mergers and acquisitions (M&A), as well as a hot market for initial public offering (IPOs).

However, management cited a few key factors that could affect the firm’s revenue growth in the coming months, including the increased likelihood of monetary policy tightening in the near term owing to inflationary pressures. This would tend to dissuade corporations from engaging in M&A activities. Also, GS’ shares have declined 4.1% in price over the past month due to the broader market sell-off prompted by mounting concerns about the COVID-19 omicron variant.

Here is what could shape GS’ performance in the near term:

Analysts Expect Slowing Growth

Analysts anticipate the company’s growth to decelerate in the fourth quarter, with revenues expected to increase by 2% year-over-year, while earnings per share will fall by 3%. In addition, analysts are less hopeful about growth in 2022, predicting that sales will plummet 17.5%, while EPS will decline 32.7%.

Though GS reported impressive performance this year, beating consensus estimates, its declining growth rate could concern investors.

Impressive Financials

During the third quarter, ended September 30, 2021, GS’ net interest income increased 44% year-over-year to $1.56 billion. The company’s net earnings grew 63% from their year-ago value to $5.38 billion, while its EPS rose 66% year-over-year to $14.92. In addition, its common equity tier 1 capital came in at $93.3 billion, representing a 4.4% increase for the three months ended September 30, 2021.

Mixed Profitability

GS’ 89.5% gross profit margin is 40.1% higher than the 63.9% industry average. Also, its 1.54% and 38.2% respective ROA and net income margin are 13.2% and 27% higher than the industry averages. Furthermore, its 8.5% trailing-12-months CAPEX/Sales is 427.2% higher than the 1.62% industry average.

However, GS’ 0.1% trailing-12-months asset turnover ratio  is 78.4% lower than the 0.21% industry average. Also, its cash from operations stood at a negative $7.69 billion compared to the  $136.14 million industry average.

Discounted Valuations

In terms of forward non-GAAP P/E, the stock is currently trading at 6.33x, which is 41.7% lower than the 10.86x industry average. Also, its 0.66x forward non-GAAP PEG multiple is 30% lower than the 0.94x industry average. And GS’ 2.16x forward Price/Sales  is 33.8% lower than the 3.27x industry average.

POWR Ratings Reflect Uncertainty

GS has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GS has a C grade for Stability and Quality. The stock’s 1.51 beta  is in sync with the Stability grade. In addition, GS’ mixed profitability is consistent with its Quality grade.

Of the 22 stocks in the A-rated Investment Brokerage industry, GS is ranked #16.

Beyond what I have stated above, one can view GS ratings for Growth, Value, Momentum, and Sentiment here.

Bottom Line

The company reported solid earnings results in its last reported quarter due to increasing financial transactions and capital market activities. However, considering analysts’ expectations of slowing growth in the coming months, we believe investors should wait for GS’ prospects to stabilize before investing in the stock.

How Does Goldman Sachs Group Inc. (GS) Stack Up Against its Peers?

While GS has an overall C rating, one might want to consider its industry peers, Manning & Napier Inc. (MN) and Piper Sandler Companies (PIPR), which have an overall A (Strong Buy) rating.

GS shares rose $3.54 (+0.95%) in premarket trading Tuesday. Year-to-date, GS has gained 43.39%, versus a 22.88% rise in the benchmark S&P 500 index during 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. More...

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