GS traded below today's price as recently as November 2011 and was much lower during the financial crisis. The author is talking valuation, not price. Last trade $90.95 -$2.68.
GS priced their IPO at $53 on May 3, 1999.
You have sat too long for any good you have been doing lately ...
Depart, I say; and let us have done with you. In the name of God, go!
-Oliver Cromwell to the Rump Parliament*
April 20, 1653
From Sum Zero:
Goldman Sachs Is Trading at Its Cheapest Price in History
(This is a highly-abbreviated version of a full SumZero report republished with the author's consent)HT: Abnormal Returns
Contributor: Alex Bossert.
Firm: Uncited. Hedge Fund.
Location: Minneapolis, MN.
Recommendation: Long Shares of Goldman Sachs (NYSE: GS).
Timeframe: 2 Years and Beyond
Recent Price: $96.00
Target Price: $200.00
Strategy: Deep Value
Disclosure: The author of this report had an active position in this security at the time of its posting.
Quick Thesis:
Goldman is trading for the cheapest price in its history as a public company.
Goldman has been hit from every angle recently. Some of the challenging factors include subpar loan demand, low M&A, IPO and other investment banking business, regulatory threats, market deleveraging, lower company leverage, constant criticism etc. This has resulted in one of the world’s premier investment banks trading at less than 75% of tangible book. Goldman is worth over $200 per share and investors are ignoring many positive factors going forward.
Over the course of Goldman’s history they have been very nimble in shifting assets to the highest ROI areas, assuming that ROE will be at these very depressed levels forever is not an accurate conclusion. Goldman is trading at a large discount to the liquidating value of its assets that are nearly all mark to market. Investors are ignoring the opportunities and tailwinds that exist.
There is a huge potential to grow significantly overseas and competition has been reduced from the financial crisis. In addition, the reduction of the firm’s temporary liquidity will add a few billion to the bottom line. Increased leverage and a return to more risk taking will also boost results. Large share buybacks at such an advantageous price will further enhance value.
Since Goldman’s IPO in 1999 through 2011 book value per share has grown 16% per year, Return on equity has averaged 18.5% and pretax margins has averaged 31%. Keep in mind that these numbers include the recession years 2008-2011. From 2008-2011 book value per share grew 15% and return on equity averaged 12%. Goldman has never lost money as a public company except for the 4th quarter of 2008.
Tangible book value per share was $124 at the end of the first quarter. At 75% of book value, this is the cheapest Goldman has ever traded at except right after the Lehman bankruptcy. In May of 1999 Goldman Sachs went public at $70 per share. Thirteen years later the stock is only 35% above its IPO price but tangible book value per share has increased from $23 in 1999 to $124 today. In addition, earnings per share has increased from $5.60 per share in 1999 to $15.22 in 2010. According to Boykin Curry’s Value Investing Congress presentation, the liquidating value of Goldman a year ago was $150 per share.
If book value grows 12% going forward (even at a 12% ROE book value will grow faster because of accretive buybacks), tangible book value will grow to $174 by the end of 2014. At a multiple of 1.2-1.4x book value the company is worth $208-$243 when very depressed growth levels are assumed. If Goldman is able to generate ROE’s of 14-16%, it’s worth up to $270 per share....MORE
*Via the Keyholez tumblr, in the same speech Cromwell
"told Sir Henry Vane he was a Jugler [sic]; Henry Martin and Sir Peter Wentworth, that they were Whoremasters; Thomas Chaloner, he was a Drunkard; and Allen the Goldsmith that he cheated the Public...[Francis] Allen.
Ultimately the Allen the Goldsmith quote comes from The Chronological Historian, London, 1723
