Is It Time To Invest In Goldman Sachs?
The market has been a bloodbath over the last three trading days, and Goldman, like many companies, have been taken down with it. The market is moving up and down at far faster rates than underlining estimated business value of companies. Just because a company's stock falls or rises doesn't mean business value fell or rises as well. The value of a business moves at a far slower pace than markets. Today the market was down 1000 points, then up 500 points, and then down another 550 points when it closed. This means sound and profitable companies are seeing a discount between business value and market value.
Goldman Sach (GS) is a multinational investment banking firm, that engages in global investment banking, securities, investment management and other financial services to primarily institutional clients. Founded in 1820, over time it has grown to become the largest investment banking firm in the world. Many top executives of the firm have worked in and around the federal government, which has made the firm the most influential Wall Street institution in Washington, D.C.
- Investment Bank - Accounts for 17% of total revenues
- Trading and Principal Investment - Accounts for 68% of revenues and profits
- Destress-Debt Investment - Invest in Destress Debt Globally
- Asset Management and Securities Services - Total Assets Under Supervision of $21 billion
- GS Capital Assets - Invested over $17 billion dollars over 20 years
Over the last 10 years, Goldman Sachs has produced operating earnings of $12.17 billion dollars or $25.70/share. The financial crisis did not undermine Goldman's operating earnings and the company is selling far less than its 10 year average operating earnings. The recent decline in Goldman Sachs shares has nothing to do with the companies underlining estimated business value.
The company is currently selling for 10.5x its earnings, 7.1x its operating earnings, and 1.1x its book value. Goldman Sachs, thanks to the recent sell off, is selling far below estimated business value. The firm should trade at more than 10x its earnings. The company is one of the cheapest large financial firms in the market today. Morgan Stanley, one of Goldman's peers, sells for 20x its earnings which is a highly unrealistic multiple for Goldman to trade to. Goldman should trade for between 12x to 15x its earnings. If Goldman sold at 12x its normalized earnings then it would sell for $185.64 per share or at 15x, then it would sell for $231.30 dollars. If Goldman sold at 10x its operating earnings, it would sell for $259.20 per share which means you can buy Goldman at 7x its operating earnings and get a 15% pretax return on your potential investment. Goldman has a fair value range of $185 dollars to $231 dollars per share.
Posted in ...Market Commentary