After the disappointing fiscal third-quarter results, The Goldman Sachs Group, Inc. (GS), a leading global financial institution specializing in investment banking, securities, and investment management, is all set to release its fiscal fourth-quarter results (ended December 2023) on Tuesday, January 16, 2024.

In light of this, this article assesses the fundamentals of GS to determine if the stock is a buy or sell. Let’s understand in detail.

Despite exceeding analyst predictions on account of stronger-than-expected trading revenue, the bank’s third-quarter results witnessed a slight drop in its top line and a notable decline in its profits. This substantial year-over-year drop in its profits is largely attributed to GS’ strategic pivot away from the consumer segment of its business.

Meanwhile, another contributing factor to the declining profits was the bank’s exposure to commercial real estate, which led to significant write-downs. GS revealed a third-quarter write-down of $506 million linked to the lending business GreenSky and $358 million in impairments associated with real estate.

According to Wells Fargo analyst Mike Mayo, GS experienced a “messy” third quarter, characterized by heightened compensation costs and overall returns falling significantly below the mid-teens medium-term target.

Nevertheless, in spite of the underwhelming third-quarter results, GS’ Chairman and CEO, David Solomon, expressed confidence in the significant progress the company is making in executing its strategic priorities. Solomon anticipates that the ongoing efforts will establish a much stronger platform for the company in 2024.

Furthermore, he expects a sustained recovery in both capital markets and strategic activities, provided that conditions remain favorable.

Moreover, the bank's commitment to providing holistic solutions to investors is evident through the debut of Marquee MarketView on November 14, 2023. This innovative visual analytics dashboard, integrated into the Marquee digital platform for institutional investors and corporate clients, represents a significant step forward.

This patent-pending tool offers visual insights developed by GS experts, facilitating easy tracking of market trend analyses across asset classes. Investors can create personalized dashboards, share insights effortlessly, and collaborate seamlessly, aiming to enhance the idea generation and investment process.

In terms of price performance, GS’ shares surged 21.9% over the past three months and 7.1% over the past month to close the last trading session at $377.75.

Here are the financial aspects of GS that could influence its performance in the near term:

Mixed Financials

For the fiscal third quarter, which ended on September 30, 2023, GS’ total net revenues plunged 1.3% year-over-year to $11.82 billion. Moreover, its net earnings and EPS came in at $1.88 billion and $5.47, down 36.5% and 33.7% from the year-ago value, respectively.

On the other hand, during the same quarter, the company’s total assets stood at $1.58 trillion, increasing 9.4% compared to $1.44 trillion as of December 31, 2022.

Mixed Profitability

The stock’s trailing-12-month gross profit margin of 82.83% is 37.2% higher than the 60.37% industry average. Likewise, its trailing-12-month CAPEX/Sales of 5.72% is 188.7% higher than the industry average of 1.98%.

However, GS’ trailing-12-month Return On Common Equity (ROCE) of 6.68% is 43% lower than the 11.72% industry average. Furthermore, its trailing-12-month net income margin of 17.76% is 29.3% lower than the industry average of 25.13%.

Negative Analyst Estimates

The consensus EPS estimate of $22.83 for the fiscal year ended December 2023 reflects a 24.1% year-over-year decline. While the consensus revenue estimate of $45.79 billion for the same period indicates a 3.3% year-over-year plunge.

POWR Ratings Reflect Uncertainty

GS fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 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 Growth, justifying its mixed growth in the third-quarter results. Moreover, the stock has a C grade for Stability, which is consistent with its 24-month beta of 1.21. Likewise, its C grade for Quality is in sync with its mixed profitability metrics.

Within the Investment Brokerage industry, GS is ranked #16 out of the 20 stocks.

Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, and Sentiment. Get all ratings of GS here.

Bottom Line

While the long-term outlook may appear promising, buoyed by the CEO’s optimism, strategic initiatives, and launch of innovative tools like Marquee MarketView, GS confronts challenges and uncertainties underscored by the company’s mixed fundamentals and pessimistic analyst estimates. In such a scenario, exercising patience for a more opportune entry point might be a prudent approach for investors.

How Does The Goldman Sachs Group, Inc. (GS) Stack Up Against Its Peers?

While GS has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Asset Management sector: Silvercrest Asset Management Group Inc. (SAMG), Westwood Holdings Group, Inc. (WHG), and Victory Capital Holdings, Inc. (VCTR). For exploring more Asset Management stocks, click here.

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GS shares were trading at $377.75 per share on Monday afternoon, down $2.00 (-0.53%). Year-to-date, GS has declined -2.08%, versus a 0.29% rise in the benchmark S&P 500 index during the same period.

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