Goldman Sachs Group, Inc. (GS) is at its 52 week high. This surge in its market price can be directly attributed to the company's strong financial performance, major inflows and capital gains caused by sale of its stake in ICBC. Goldman Sachs recently disclosed the financial information for the fourth quarter of 2012 and the numbers were stronger than analyst estimates. This factor pushed the market value of the company's stock to a higher point. The stock picked up again after the company announced the sale of its stock in ICBC for $1 billion. Following is a brief overview of the relevant factors.
Goldman Sachs has exhibited commendable market performance in the recent past. The company's share price hit its 52 week low in mid-2012; however, it has surged significantly from that point. The 52 week range of the stock price is between $90.43 and $147.5. The difference between the two extremes clearly shows the extent of incline Goldman Sachs's stock price has shown in the past few months. Currently the company's shares are being traded within the range of $145.91 and $147.42, which is very close to the 52 week high of the shares. There is sufficient evidence pointing toward the probability that the share price will continue to surge in the foreseeable future, therefore the 52 week high is expected to rise even higher. The following chart represents the trend of share price of Goldman Sachs over the past year.
It can be observed from the chart that the share price of Goldman Sachs made a steep incline toward the end of Q4 2012, and this incline is still in progress. This rise in share price has set a foundation for the expectations regarding the continuation of this trend in the near future.
Sale of Stake in ICBC
One of the biggest factors that pushed the share price of Goldman Sachs was the disclosure that the company had sold its shares in Industrial & Commercial Bank of China (ICBC). Goldman Sachs managed a cash inflow of $1 billion from the sale and the shares surged 2.1% immediately after the information was made public. From the sale of its stake in ICBC, it can be derived that Goldman Sachs is gradually cutting down its stake in non-core business. Goldman Sachs is also under pressure from regulatory authorities to strengthen its capital ratios, and this sale was one of the ways to pursue that purpose.
Goldman Sachs recently disclosed the financial information pertaining to its fourth quarter in 2012. The numbers were stronger than analyst estimates by a significant extent. For Q4, the EPS of the company stood at $5.60 which is significantly higher than the average analysts' estimates of $3.66. The revenue for the fourth quarter stood at $9.24 billion which was also significantly higher than the estimates of $7.83 billion. This better-than-expected performance by Goldman Sachs had a very positive influence on the market performance of the company and it has been setting new 52 week highs every other day. The following chart represents the financial performance of the company over the past five quarters.
For the year 2012, Goldman Sachs reported net revenues of $34.16 billion and net earnings of $7.48 billion. With the strong financial performance, Goldman Sachs continued to be the leader in investment banking. The Chairman and Chief Executive Officer of Goldman Sachs, Lloyd C. Blankfein said, "While economic conditions remained challenging for much of last year, the strengths of our business model and client franchise, coupled with our focus on disciplined management, delivered solid performance for our shareholders. The firm's strategic position provides a solid basis on which to grow and generate superior returns."
The financial and market performance of Goldman Sachs has also been commendable in comparison with its competitors i.e. JPMorgan Chase & Co. (JPM) and State Street Corporation (STT). The EPS of Goldman Sachs is higher than those of JPMorgan and State Street which stand at $5.2 and $4.19 respectively. JPM holds the net profit margin of 24.06% for the fourth quarter in 2012, which is lower than that of Goldman Sachs's net profit margin for the same quarter which stands at 25.99%. On the other hand, the net profit margin of STT for the same quarter stands at 19.19% which is lower than both JPM and GS. Therefore, it can be said that Goldman Sachs has a stable position as the market leader in investment banking.
After the analysis of multiple factors influencing the market performance of Goldman Sachs, in my opinion, investors should buy the shares in the company. The rationalization behind this recommendation is that the company has exhibited very strong financial performance and there is a reasonable level of certainty that the financial growth will continue in the prospective financial periods. Therefore, the strong financial performance will continue to have a positive influence on the company's market performance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.