The Godman Sachs Group (NYSE: GS) is an investment bank and financial services company with a strong performance and growth track record. Still, the recent quarterly earnings report shows that Goldman Sachs has lagged behind its major Wall Street peers for a second consecutive quarter. The company delivered a top-line miss after its quarterly revenue of $12.224 billion missed the market expectation of $12.762 billion by $573.893 million. However, the analyst beating quarterly earnings per share (EPS) of $8.79/share could help provide support to the share.

Goldman Sachs CEO David Solomon attributed the weak financial performance for the quarter to the muted investment banking activity in the face of uncertain macroeconomic conditions and higher interest rates. The CEO further suggested that the aggressive monetary tightening by the Fed, which has raised concerns about the potential economic downturn and the recent banking turmoil following Silicon Valley Bank and Signature Bank collapse, have lowered growth expectations and hampered the bank’s performance.

Technical

The daily chart shows that the recent quarterly earnings report has helped cap the share’s recent recovery after finding recent support at $302.07/share last Friday. The bulls could be hoping that the appearance of the golden cross in early November 2022 and the recent outlook could be able to boost bulls’ rally towards the initial resistance level at $339.59/share, a level of interest for the bulls. Should the bulls’ rally extend beyond the initial resistance level, then the bulls could be confident in testing the resistance level at $356.50/share.

However, as the 200-day moving average (200-EMA) is approaching the 50-day moving average (50-EMA), the bears could be hoping that the declining shorter-term average and rising longer-term moving average could be signalling the presence of selling pressure. Thus, if the bears gain dominance over the bulls, a trading opportunity could exist at the $302.07/share support level.

Using the discounted cash flow model, Goldman Sachs’s fair value is $372.01/share, which offers an upside of 11.41% from the share’s current price of $333.91/share.

Fundamentals

In the recent quarter, Goldman Sachs reported strong financial results, exceeding analysts’ expectations, but investors worry as firmwide revenue fell short of the market’s expectation. The company reported net quarterly revenue of $12.224 billion, a decrease of 5.5% from the same period last year. The company’s net profit for the quarter was $3.09 billion, a 19.3% decline from the same quarter the previous year. The decrease in revenue was primarily driven by the lower net revenue by Global Banking and Markets, where the bank’s Fixed Income, Currency and Commodities (FICC ) declined by 17% to $3.93 billion, and the investment banking fees fell by 26% to $1.58 billion for the quarter.

The equities trading record revenue beat the market’s expectation after reaching $3.02 billion for the quarter, helping soften the blow to the bank’s share. However, on closer inspection, it can be seen that $3.02 billion in revenue for the unit represented a 7% decline in the unit’s revenue as the bank’s revenues continued to contract. Goldman Sachs’ Asset & Wealth Management and Platform Solutions significantly higher net revenues, partially offsetting the declines in the other departments. Net revenues in Asset & Wealth Management were $3.22 billion for the first quarter of 2023, 24% higher than the first quarter of 2022

The company’s decision to scale down Marcus, the bank’s consumer business, sent shockwaves in the markets sending the share price lower. The decision came as a surprise to investors as David Solomon was one of the main individuals who championed the consumer business. Looking at the numbers, investors can understand the decision after the bank sold off approximately $1 billion worth of loans from the business’ portfolio and booked a $470 million loss on the sale, which in turn impacted the top-line miss for the quarter. Analysts believe that the global financial services company might have entered the consumer business at the worst time with the current macroeconomic conditions, including the persistently high inflation rates in the major economies, and the re-scaling of the business segment might work in the bank’s favour in the long run.

Goldman Sachs has a long history of financial excellence which has helped the company, but the current macroeconomic conditions have affected the company’s performance, which translated into the shares’ performance. Goldman Sachs’s share is currently trading at a 2.76% discount from the turn-of-the-year price level, and the slump should worry investors as this slump follows the decline of 10.24% experience in 2022.

The picture below shows that the bank’s price-to-book (P/B) ratio ai currently at 1.1x for the last three years, which could suggest that the share could not be a solid investment as the markets generally regard a company with a P/B ratio above 1.0x times an overpriced company. However, compared to the major peers such as Morgan Stanley and JP Morgan, the investment bank’s share is cheaper.

The total returns picture below shows that the investment bank’s share has returned 20.39% total return for its shareholders even in the face of a declining share price. The total return could testify to the bank’s excellent past financial performances, which has seen the share outperform most of its peers, such as JP Morgan and Bank of America, as well as the S&P 500 Index, which returned 8.21% for the same quarter.

Summary

Goldman Sachs is a well-managed and diversified financial services firm with a strong reputation for financial excellence. The company’s recent quarter performance was less than impressive, but the excellent outlook could help boost the company’s share higher. Therefore, a long opportunity could exist at the $339.59/share price level as the share attracts buyers, and a buy-the-dip opportunity could exist at $302.07/share if the bears continue to push the price lower.

Sources: TradingView, KoyFin, Reuters, CNBC, Seeking Alpha, Bloomberg, Goldman Sachs.

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