The banking giant has slipped below tangible book value on worries over the yield curve, 1MDB and the ongoing correction in the US equity market.
2018 has been a tough year for Financials which will be addressed in another post shortly, but for now, Goldman (NYSE:GS) trading below $186 brings the white-shoe firm below tangible-book value (TBV) and might start to be of interest to readers.
Taking a quick look at forward earnings and revenue estimates, Goldman is trading at 7x the expected 2019 and 2020 estimates of $25.61 and $27.66, with EPS expected to grow 1% and 8%, while revenue is expected to grow 1% and 3%, respectively. (Consensus estimates from IBES by Refinitiv).
One interesting note is that Goldman said it was going to cut back on share repurchases in terms of capital return for the year, but in Q3 '18, Goldman returned $1.2 billion in capital to shareholders via buybacks. It makes sense to buy back shares at these price levels, below tangible book value.
Technically, the stock is trading below the previous lows from 2018 and 2017, so that's not a plus. 2016 lows from Q1 '16 which was the last decent correction we saw in the markets, saw GS hit $135-139. It's doubtful the stock would get anywhere close to that level though.
Goldman is still a world-class franchise in the Financial sector but maybe not the one for longer-term investors. The banking business could be slowly disintermediated away as emerging tech companies might choose to go public via crowdfunding or Dutch auction, much as Spotify (NYSE:SPOT) did. The global investment banking business is subject to the same "creative destruction" forces as any other business.
The emphasis over the next 3-5 years will likely be on asset management for Goldman. Getting more of their high net worth clients share of wallet and client lending will likely be an important business segment for Goldman in the next 5 years.
It surprised me to read that of Schwab (NYSE:SCHW), Ameritrade (NASDAQ:AMTD), Goldman, and Morgan Stanley (NYSE:MS), Schwab had more assets under management than the other three, while Goldman had the least.
In the next few days/weeks, I might take a shot at Goldman on the long side for a trade. The stock was last sold at $244-245. Goldman's valuation is getting too cheap although 1MDB remains a wild card.
What's I'd like to see in terms of trading action is the stock in the green on an otherwise red day for the tape and other Financials. Some other technicians think $160-170 is the right area to own GS.
Today, Goldman is down 3% on slightly heavier volume than average.
Thanks for reading,
(Again, I may or may not do anything on the stock in terms of trading it for accounts. If the opportunity is there on the long side and the stars align, GS is worth the trade. The valuation is what is interesting.)