Goldman Sachs

A Retrospective

This is intended to be a reflection on what was one of the best trades of the last three years. As you can see from the chart below, the stock is up 3x in less than three years.

At the beginning of 2023, Goldman’s common shares were trading at a 9% net income yield based on trailing earnings. See historical financials here.

There was a narrative that they’d lost their focus. Morgan Stanley was apparently eating their lunch on asset and wealth management, and the CEO was distracted by his side gig as a DJ. In addition, their consumer business was struggling.

Fast forward to today and they’re back on top of the world. They wound down the consumer card business. The CEO stopped talking about his side hustle and they focused on what they do best - investment banking, trading and asset management. While revenues from these businesses haven’t grown that much since 2023, sentiment on Goldman’s prospects has changed dramatically. The common shares now trade a 5% normalized net income yield, which is the most expensive the stock has been in the last ten years.

This is a reminder that when you can buy a world class franchise for cheap, you should back up the truck. Smart people typically learn from their mistakes and figure things out and Goldman (which employs some of the smartest people in the world) is no exception

My sense is that Goldman will earn about $15B in ‘normalized’ net income in 2030 - see assumptions in the spreadsheet. I can see a 20x multiple given the business is now much more about consistent fees, so fair value is about $300B. At the current $290B market cap, there’s really no upside here.

2026 will likely be a stellar year for Goldman given the advisory backlog, so the market is back in love with Goldman.

Bank of America seems like a much better bet here trading at 13x current earnings, with earnings likely growing 5-7% a year for the next five years as their low yielding assets re-price higher.

If Goldman’s market cap falls into the low-to-mid $200B range that would certainly be a buying opportunity.