"The assets walk out the door every night."Now it appears the market is valuing those walking out the door at less than zero. Ouch.
From Investing.com, Dec. 4:
Banking giant Goldman Sachs Group (NYSE:GS) 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 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).
Buybacks
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 had in the markets, saw GS hit $135 – $139. It’s doubtful the stock would get anywhere close to that level though.Goldman is the worst performing component of the DJIA this year:
Bottom Line
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 crowd funding or dutch auctions, just as Spotify (NYSE:SPOT) did. The global investment banking business is subject to the same “creative destruction” forces as any other business....MORE
$179.06 last. A trend appears to be emerging.
