Goldman Sachs (GS) is currently trading at $215.88 per share (April 20, 2017), up 0.80% or $1.85 after plunging from $228.90 on April 18, 2017 to its current level. The sharp drop in the share price is a direct result of GS missing earnings expectations. Goldman Sachs (GS) currently has a market capitalization of $85.88 billion with a respectable price/earnings ratio of 13.26. The one year target estimate price of the stock is surprisingly bullish at $250.88 per share. The 52-week trading range of the stock reflects that bullish sentiment with a high of $255.15, and a low of $138.20. But the big news for the week, possibly for the month of April is the poor performance of Goldman Sachs vis-à-vis quarterly earnings. Surprisingly bearish performance by GS had a hugely negative effect on the Dow Jones industrial average, sending the all share index plunging. Over the past 3-month period, Goldman Sachs has declined by approximately 7.50%, a sizable figure for a bank that size.
Goldman Sachs Expenses Rose Markedly
This marks the first time that Goldman Sachs has generated an earnings miss on its EPS (earnings-per-share) since 2015. It wasn’t all doom and gloom for banking stocks and their quarterly earnings, since Bank of America (BAC) generated positive earnings results. This helped the stock to surge and it acted as a counterbalance to GS. The loan business component of Bank of America (BAC) increased by 6% during the most recent quarter. Unfortunately for BAC, the recent gains were insufficient to allow the stock to make any ground. It has reversed course and is trading lower heading into May 2017. The performance of Goldman Sachs was a shocker to financial markets. Net revenues came in at $8.03 billion for Q1 2017. Diluted earnings per share of $5.15 were reported with net earnings of $2.26 billion. Goldman Sachs investment banking revenues came in at $1.703 billion, up markedly from Q4 2016 figures of $1.486 billion.
The year on year increase in compensation and benefits was 34%. This is evident in the expenses side of the equation at $3.291 billion. In Q4 2016, provisions for taxes of $1.050 billion was reported, but in Q1 2017 that figure was just $284 million. Viewed from quarter to quarter, the results are uninspiring. This is especially true when we take the provision for taxes into account. Traders can use macroeconomic data to understand market fundamentals and the effects they have on individual stocks. Of course, this data should only be used at reputable trading brokers. Lionexo offers verified trading services to clients, with full financial compliance in place at all times. When trading at an online broker, it is vital that the duration of the trades dovetails with the expected impact of the economic data under consideration. Analysis indicates that GS is 35% higher over the past 1-year period. This should be remembered when considering Goldman Sachs as a viable investment option over the long-term. Quarterly earnings misses are an all too common occurrence for stocks, particularly bank stocks which are subject to macroeconomic variables.
In 2017, we are going to see multiple interest rate hikes kicking in, and the prospect of deregulation of the banking sector could also come into play. Now may prove to be an auspicious time to purchase GS stock, prior to the reversal which is invariably going to follow. Recall that the Fed raised interest rates by 25-basis points on March 15, 2017 and there are still at least 2 more rate hikes slated for the year. Bank stocks like GS, BAC, WFC and C tend to prosper when rates rise because they can generate substantial revenues on higher interest rates. Now that Trump has renewed confidence in Janet Yellen, we may have to wait for the next rate hike before deciding on put options on this blue-chip stock. For the quarter ending in March 2017, there was a -4.28% earnings surprise, given the consensus forecast of $5.38 per share and the actual earnings of $5.15 per share.
