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Goldman Sachs Stock: Growth Catalysts Outshine Near-Term Woes
Stock Analysis & Ideas

Goldman Sachs Stock: Growth Catalysts Outshine Near-Term Woes

Shares of investing banking behemoth Goldman Sachs (GS) are fresh off a 20% slide into bear-market territory. After surrendering a considerable chunk of gains posted in a record 2021, an intriguing entry point seems to have formed for those looking for deeper value within the financial space.

There’s no question that Goldman feels the force of the choppy waters in the banking scene. After an underwhelming fourth-quarter result dragged down by meager trading revenues and more potential weakness in capital markets up ahead, it’s not a mystery as to why investors have been so quick to throw in the towel.

Despite the negative momentum and tough year-over-year comparables up ahead, the longer-term fundamentals still seem very much intact. If anything, Goldman’s push into retail banking could be a long-term effort that could pay ample dividends. In any case, the long-term push is sure to outlast recent headwinds facing the firm.

With a ridiculously low 5.6 times trailing earnings multiple and 1.1 times book multiple, shares of Goldman Sachs seem more like a bargain with medium-term baggage than a stock with a deteriorating narrative.

Even with the increased risk of a recession, it’s hard to view the firm as a value trap, just one year after its incredible ascent. If anything, the recent plunge seems more like a road bump than the start of a steeping descent towards the trading range not hit since 2020.

Goldman Sachs: Misses the Mark; Stock Punished

Goldman came up short of expectations, with $10.81 in per-share earnings versus the consensus estimate calling for $11.76. Headwinds facing trading volumes could outlast the weak quarter.

Looking beyond the questionable results, though, there are many things to get excited about as Goldman leverages its consumer-facing brand. Digital retail banking, transaction banking, third-party initiatives, and wealth management could be key growth drivers that power GS stock to the next level. The bank is still firing on all cylinders, with the original “five-year deposit growth opportunity” very much in play.

For now, though, progress in its traditional businesses will continue to be the primary needle-movers. While there are potential headwinds, including the impact of Russia’s invasion of Ukraine, Goldman is still in great shape to defend its turf as it moves into the retail arena to bring forth next-level growth.

Medium- and Long-Term Catalysts Hard to Ignore

Goldman’s pivot into consumer banking opens new doors. The Marcus digital-banking platform and the Apple Card initiative are just a taste of the type of innovation to come from the old-time investment bank.

Sure, Goldman will be playing catch up in retail for many years to come, but with all of the innovation going on in the financial world, there has arguable never been a better time to face the consumer. It’s a growth lever that’s definitely worth pulling.

With a well-established brand and an eye on next-generation financial technologies (think Goldman’s acquisition of BNPL firm GreenSky), it would be a mistake to believe that Goldman is not on the right side of consumer finance innovation.

Goldman isn’t stopping at pursuing new frontiers for growth. It’s also looking to improve upon its operational efficiencies. Through 2025, Goldman will be pushing to enhance its ROE and ROTE to mid-teen percentages. Not only can Goldman hit such levels, but it could surpass as the firm looks to strategically trim away at costs.

Wall Street’s Take

Turning to Wall Street, GS stock comes in as a Moderate Buy. Out of 15 analyst ratings, there are 10 Buys and 5 Hold recommendations.

The average Goldman Sachs price target is $446.21, implying an upside potential of ~32%. Analyst price targets range from a low of $360.00 per share to a high of $574.00 per share.

Bottom Line

Over time, Goldman’s non-traditional consumer banking efforts will begin to grow to a more influential size.

The company is embracing fintech innovation, and in due time, its stock will be rewarded as the company looks to meet its goals. With a brilliant management team that knows how to get the job done, the recent sell-off in GS stock seems overblown.

The Q4 weakness may have been a cause for concern, but the stock has served its time and could be headed steadily higher from here unless we are propelled into a recession. In any case, the growth story for Goldman hasn’t been this good in a long time.

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