Valuation analysis for Goldman Sachs Group Inc (NYSE:GS)

Our DJIA valuation analysis continues with the eleventh stock in the DJIA alphabetically.  We are in the process of publicly evaluating all of the stocks in the DJIA to determine fair value for the Market, using data already supplied to clients of Stock Traders Daily and available now. 

When it comes to companies in the investment business none is more influential in my opinion than Goldman Sachs Group Inc (NYSE:GS).  When analysts at Goldman speak Wall Street listens, and equity prices move.  However attractive that may be though, it does little to support the valuation placed on shares of Goldman Sachs.  Instead, valuation is directly tied to EPS growth, so we need to take a close look at that to identify value in Goldman's shares at this time.

Sign Up for Free Trial

At first glance the PE multiple of Goldman Sachs is not expensive when compared to other stocks.  The PE is slightly over 11x, which by comparative standards is low, but proper valuation analysis compares the PE to EPS growth rates for the company itself, not to other company's PE multiples, and when we look at the EPS growth rate for GS something very concerning comes to light.

GS Goldman Sachs PE Price Earnings Ratio

Although GS experienced a great recovery after the dismal Q3 2011 result, the company has not been growing earnings meaningfully since then.  In fact, Yearly trailing EPS growth is now negative, and that is a big red flag.  I would also suggest that the lack of revenue growth is supporting evidence that Goldman Sachs is not growing.

GS Goldman Sachs EPS Growth

GS Goldman Sachs Revenue Growth

One might argue that this is the reason that GS is trading at about 11x earnings, but when we compare the EPS growth to the PE multiple we also find that the corresponding PEG ratio turns negative.  That means there is absolutely no reason to be buying GS at these levels on a fundamental basis.  It is rich, and looks expensive based on its negative growth rate.

Technical Take:

According to our real time report for GS the stock recently came very close to longer term resistance and it is already in the process of declining to longer term support again.  We would expect a decline within this established channel as a result, until support is tested at least.

Summary:

The weak fundamentals open the door for decline, especially if the market comes under pressure, and given the very rich value placed on GS at this time, even with the seemingly low PE multiple, the stock is an avoid on a fundamental basis, and that is supported by the technicals too.  We expect shares of GS to decline based on both a fundamental and technical basis.

share_linkedin