The renowned 153-year old investment bank is flexing its muscles in the consumer market and even exploring cryptocurrency
When the market offers you the chance to buy an industry-leading business with an iconic brand on sale, it never hurts to take a closer look. One such example in the current market is renowned financial services giant Goldman Sachs(GS -0.46%), whose shares are down 13% year to date and 22% from their 52-week high.
Retention
Let's start by looking at one of the main reasons Goldman shares have declined.
Shares sold off in February because the storied investment bank missed earnings estimates in its most recent quarter. The primary culprit for the miss was a 23% increase in operating expenses year over year, driven largely by increased pay and compensation for employees.
While it's not ideal to see a large increase in operating expenses, I think Goldman deserves some slack here, because like many other businesses it needed to raise pay to retain employees amid the shift to remote work while the Great Resignation led to unprecedented employee turnover and a sea change in the employer-employee relationship. I can understand a company like Goldman paying up to retain talented workers in a competitive market rather than to be in the unenviable situation many other companies find themselves in, struggling to find enough workers and having trouble keeping the ones that they have.
Furthermore, if this was a one-time blip in an unprecedented year, then this could be a good buying opportunity as the company gets expenses and earnings back on track.
Image Source: Getty Images
Flexing its muscles in consumer
On a positive note, Goldman is taking the brand equity from its renowned investment banking division and bringing it to the consumer market. Total loans for its consumer banking platform, Marcus, grew from $106.4 billion to $146.31 billion year over year, and Chief Executive Officer David Solomon says he expects consumer revenue to grow from $1.5 billion to $4 billion over the next two years.
Marcus is gaining some serious traction in credit cards, despite its short tenure in the business, demonstrating the acumen that Goldman brings with it and how its strong brand has helped it to enter consumer banking. For example, in early 2022 Marcus took over a co-branded card with General Motors that helps customers earn points toward new GM vehicles and pays seven times points on purchases at GM. This card was previously with Capital One so this looks like a big win for Marcus over an established incumbent. Marcus also has a partnership with perhaps the most visible brand in the world, Apple,to launch a branded credit card.
From crypto skeptic to zealot?
While it is not yet a meaningful part of the company's business and it is too early to know what its ultimate strategy will be, it is exciting to see the 153-year-old bank change its stance on cryptocurrency and begin to enter the market. Just two years ago Goldman said that crypto was not a real asset class, but in March 2022 the company completed its first over-the-counter Bitcoin transaction and the company now has trading desks for Bitcoin and Ethereum futures and derivatives. Goldman made a splash this March when it changed its landing page to prominently feature Web3 and the metaverse. It's very early in this story, but I like the fact that Goldman is skating to where the puck is going by adapting to new opportunities. Furthermore, with the strength of its prestigious brand (not to mention its high pay), there's no reason to think that Goldman won't be able to attract some of the best and brightest minds in crypto to further build out its strategy here.
Super cheap
Shares of the financial services giant look like a bargain no matter how you slice it. The shares now trade at just 5.6 times earnings, which is much cheaper than the broader stock market, while the share-price-to-book-value is just under 1.2. Book value is basically the value you would have left if you liquidated the company and distributed its assets, so Goldman is only trading at a 20% premium to that low bar. Lastly, a price-to-earnings-growth value of 0.5 means that Goldman also looks undervalued for a company with its earnings growth. In addition to this favorable valuation, Goldman also offers investors the added bonus of a dividend yield of 2.4%.
Is Goldman Sachs a buy?
Goldman Sachs is a global financial powerhouse that looks like it is on sale right now. And given the company's attractive valuation, growing consumer business, and nascent but intriguing forays into crypto, it looks like a solid buy from here.
Michael Byrne owns Bitcoin and Ethereum. The Motley Fool owns and recommends Apple, Bitcoin, Ethereum, and Goldman Sachs. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
FAQs
Key Points. Goldman is leveraging its strong brand to gain traction in the consumer market. The bank is adapting to new opportunities and dipping its toes into cryptocurrency. Shares look cheap on a variety of metrics and offer a 2.4% dividend yield.
How to answer why Goldman Sachs question? ›
Across the globe, it's generally recognized that Goldman Sachs is the industry leader in investment banking. This is a great “why Goldman Sachs answer”. The firm consistently ranks at the top of various league tables and is the trusted advisor for the world's biggest corporations.
Is Goldman Sachs a good buy right now? ›
Goldman Sachs Group has a conensus rating of Strong Buy which is based on 17 buy ratings, 3 hold ratings and 0 sell ratings. The average price target for Goldman Sachs Group is $453.00. This is based on 20 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
What are the four pillars of Goldman Sachs? ›
Goldman Sachs' business model is based on four primary pillars: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
Why should you invest in Goldman Sachs? ›
Over the past quarter, shares of Goldman Sachs have risen 14.03%, and are up 33.99% in the last year. On the other hand, the S&P 500 has only moved 3.78% and 27.1%, respectively. Investors should also take note of GS's average 20-day trading volume.
What makes Goldman Sachs so special? ›
We differ from our banking and fintech competitors in three main areas: technology, trust and global consistency.
What is so special about Goldman Sachs? ›
Drawing on over 150 years of experience working with the world's leading businesses, entrepreneurs, and institutions, we mobilize our people, culture, technologies, and ideas to advance the success of our clients, broaden individual prosperity, and accelerate economic progress for all.
Is Goldman Sachs a good investment bank? ›
Goldman Sachs is widely known as the most prestigious investment bank on Wall Street. The bank's interns receive phenomenal training, hands-on experience, and the opportunity to rotate across many groups and desks.
Is Goldman Sachs the best investment bank? ›
These respondents gave Goldman Sachs the highest score in Prestige – 8.665 – which is over . 3 of a point lower than its scores two years ago.
Is it safe to keep money in Goldman Sachs? ›
Is Marcus by Goldman Sachs safe? Marcus by Goldman Sachs funds are covered by FDIC insurance, which covers you for as much as $250,000 per depositor, per institution, in the event of a bank failure.
The main competitors of The Goldman Sachs Group include Charles Schwab (SCHW), Morgan Stanley (MS), BlackRock (BLK), Interactive Brokers Group (IBKR), Royal Bank of Canada (RY), Progressive (PGR), Mitsubishi UFJ Financial Group (MUFG), American Express (AXP), Citigroup (C), and HSBC (HSBC).
What are the ethical issues with Goldman Sachs? ›
The company has been criticized for lack of ethical standards, working with dictatorial regimes, close relationships with the U.S. federal government via a "revolving door" of former employees, and driving up prices of commodities through futures speculation.
Where does Goldman Sachs make most of its money? ›
- Institutional Client Services = 37%
- Investing & Lending = 24%
- Investment Banking = 20%
- Investment Management = 19%
Revenue from investment banking and trading, the bank's traditional powerhouses, surges. Goldman Sachs's GS 1.93%increase; green up pointing triangle first quarter profit jumped 28%, bolstered by strong performance in investment banking and its growing business of managing money and investments for wealthy clients.
Why is Goldman Sachs stock so cheap? ›
So why is Goldman trading so cheaply? The bank's returns have been anemic and valuations of financial stocks are correlated to them. The firm earned a 7.1% return on equity in the quarter and 7.6% for the first nine months of 2023.
Why is Goldman Sachs stock going up? ›
Investors have been rewarding Goldman this spring. The investment bank is nearing the end of a failed experiment in offering customers consumer-banking products and posted a strong start to the year for its bread-and-butter businesses: trading and advising companies on big transactions like acquisitions.
How to answer why you want to go into investment banking? ›
Some generic themes to draw on for your answer to “Why Investment Banking” could include:
- Fast-paced environment.
- Exposure to high profile transactions.
- Surround myself with intelligent and motivated people.
- Valuation & financial modeling work.
- Steep learning curve.
- Passion & love for finance.
Common Answers for “Why Investment Banking”
- Learning experience.
- Fast-paced environment.
- Relevant internship / club experience / personal experience.
- Opportunity for lots of responsibility at a young age.
- Interface with executives from different companies.
- Exposure to different business models and industries.
Consider the following steps to help you prepare effective answers for an interview:
- Research the organisation before the interview. ...
- Describe the organisation's growth prospects. ...
- Explain what you can contribute to the company. ...
- Describe your desire to work for the company. ...
- Give specific examples. ...
- Discuss your goals.
Talk about specific examples of how you can help this company achieve their goals and highlight any relevant transferrable skills that will make you stand out as the right candidate. Write down any recent achievements you can talk about or any challenges you've faced recently that might be related to this new job.
