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The Goldman Sachs Group Inc (NYSE:GS): Does The Earnings Decline Make It An Underperformer?

Julian Fleming

Measuring The Goldman Sachs Group Inc’s (NYSE:GS) track record of past performance is a useful exercise for investors. It enables us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess GS’s recent performance announced on 31 March 2018 and weigh these figures against its long-term trend and industry movements. View our latest analysis for Goldman Sachs Group

Was GS’s recent earnings decline indicative of a tough track record?

I like to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to assess different stocks on a more comparable basis, using new information. For Goldman Sachs Group, its most recent bottom-line (trailing twelve month) is US$4.24B, which, in comparison to the previous year’s level, has sunken by a significant -47.27%. Since these values are somewhat short-term, I’ve computed an annualized five-year figure for Goldman Sachs Group’s earnings, which stands at US$6.33B This doesn’t seem to paint a better picture, as earnings seem to have consistently been falling over the longer term.

NYSE:GS Income Statement Jun 14th 18

Why could this be happening? Well, let’s take a look at what’s transpiring with margins and if the rest of the industry is feeling the heat. In the past couple of years, revenue growth has fallen behind which indicates that Goldman Sachs Group’s bottom line has been propelled by unsustainable cost-reductions. Looking at growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 14.43% in the prior twelve months, and 12.90% over the past five years. This suggests that whatever tailwind the industry is profiting from, Goldman Sachs Group has not been able to realize the gains unlike its average peer.

What does this mean?

While past data is useful, it doesn’t tell the whole story. In some cases, companies that face a prolonged period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry expansion and disruption. I suggest you continue to research Goldman Sachs Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GS’s future growth? Take a look at our free research report of analyst consensus for GS’s outlook.
  2. Financial Health: Is GS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.