Shares of investment banking behemoth Goldman Sachs (GS) have slowly, but steadily, fallen into a bear market (a 20% plunge from peak to trough) over the past few months as the broader basket of financials ran out of steam.
Many of the capital markets tailwinds are now behind Goldman, with softness in trading revenues revealed in the firm’s latest earnings result. That said, investors may have a lot to look forward to over the longer term as the investment bank evolves to become more of a consumer-facing force.
If anything, the continued rise of financial technology could allow Goldman to become one of the more disruptive and innovative players in the retail banking scene within the next decade.
Still, a lot of the excitement behind the firm’s digital consumer banking push and its potential to expand upon its TAM (Total Addressable Market) to encompass new, fintech-flavored growth arenas seems overshadowed by a less-than-exciting environment that lies ahead.
Goldman’s long-term fundamentals are still strong. Arguably, they’re even stronger given the hint of success the firm has had with its Marcus platform.
With a haze of uncertainty and potential headwinds immediately up ahead, though, investors can expect a bumpy ride en route to hitting management’s ambitious, albeit realistic, financial targets.
For now, I remain bullish on shares of Goldman Sachs. The stock is incredibly cheap and already appears to factor in the more challenging year ahead.
Investors may be bracing themselves for more of the same type of choppiness that weighed down the first quarter. With lower expectations and a strategic plan that’s still intact, the stock may not be nearly as bumpy as the quarterly results to come.
Goldman Sachs Stock: Strategic Plan in Play
Goldman Sachs has its sights set on a ROTE (Return On Tangible Equity) in the 15%-17% range, up from 14%, alongside meaningful growth from its consumer banking push.
These are upbeat targets, but I think Goldman is very much capable of hitting or even surpassing such metrics. It’s the latter area, growth from the consumer banking business, that has me most excited, though.
At writing, shares of GS trade at a mere 6.5 times trailing earnings. That’s incredibly cheap. Then again, Goldman has tended to trade on the lower end of the valuation range versus its peer group. The odd scandal, a lower degree of leverage, and a more limited TAM are likely factors behind this.
As an investment-banking icon that’s known to serve individuals with a high net worth, I do think Goldman can effectively leverage its powerful and premier brand to find a spot with the average consumer. Who wouldn’t want a Goldman Sachs credit card?
There’s a lot of potential behind the consumer-facing brands such as Marcus, if Goldman can do things right. It’s not just the Goldman Sachs brand that should have investors enthused, though.
We’re moving into an age of digital-first fintech. The big banks are duking it out with the up-and-coming innovative disruptors. As a result, the retail-heavy big banks have had to adapt to the times to avoid being on the receiving end of a likely long-lived trend.
Goldman’s Partnership with Apple
Goldman has picked an incredible time to get into consumer banking. Though the old financial institution is not known for its tech-savvy, it’s hard to ignore the partnership with tech titan Apple (AAPL) on the Apple Card.
The popular credit card was reportedly ranked tops in a customer satisfaction in its segment, according to J.D. Power. That’s an exciting win for both Apple and Goldman.
The Apple Card may be just the first of many disruptive consumer-facing financial products to come from a budding Apple-Goldman partnership. Looking ahead, Apple looks focused on making a bigger splash in financial technology, with the in-housing of payment processing, among other initiatives. Undoubtedly, Goldman Sachs can help make Apple’s job much easier, as it looks to take a deeper dive into the world of fintech.
Reportedly, Apple’s partnership with Goldman Sachs is alive and well, with Goldman likely to play a role in the in-housing of the tech behind the “Apple Pay in Four” service. Where the Apple and Goldman partnership goes next is anyone’s guess.
Regardless, the two together seem like a very disruptive force in fintech, with Apple providing the tech talent and Goldman providing the financial expertise.
Wall Street’s Take
According to TipRanks, GS stock comes in as a Moderate Buy. Out of 14 analyst ratings, there are eight Buy recommendations and six Hold recommendations.
The average Goldman Sachs price target is $421.85, implying 22.7% upside. Analyst price targets range from a low of $360 per share to a high of $515 per share.
Bottom Line on Goldman Sachs
Goldman Sachs seems too cheap for its own good after its plunge into a bear market. There are more moving parts, with the bank exploring new growth arenas while improving upon a wide range of financial metrics.
Though the environment ahead may not be most favorable for an investment bank, it’s hard to ignore the bank’s disruptive potential as it continues maintaining its moat around its traditional businesses.
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