For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on The Goldman Sachs Group Inc (NYSE:GS) useful as an attempt to give more color around how Goldman Sachs Group is currently performing.
How Did GS’s Recent Performance Stack Up Against Its Past?GS’s trailing twelve-month earnings (from 31 March 2018) of US$4.24b has declined by -47.27% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 2.71%, indicating the rate at which GS is growing has slowed down. What could be happening here? Well, let’s look at what’s occurring with margins and whether the entire industry is facing the same headwind.
Over the past few years, revenue growth has fallen behind which suggests that Goldman Sachs Group’s bottom line has been propelled by unsustainable cost-reductions. Viewing growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 17.50% over the previous twelve months, and 12.05% over the past half a decade. This growth is a median of profitable companies of 24 Capital Markets companies in US including Yintech Investment Holdings, Clarke and B. Riley Financial. This suggests that any tailwind the industry is benefiting from, Goldman Sachs Group has not been able to realize the gains unlike its industry peers.In terms of returns from investment, Goldman Sachs Group has not invested its equity funds well, leading to a 5.78% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 0.43% is below the US Capital Markets industry of 5.37%, indicating Goldman Sachs Group’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Goldman Sachs Group’s debt level, has declined over the past 3 years from 4.29% to 2.72%.
What does this mean?
Though Goldman Sachs Group’s past data is helpful, it is only one aspect of my investment thesis. Usually companies that experience a drawn out period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry disruption and expansion. You should continue to research Goldman Sachs Group to get a better picture of the stock by looking at:
- 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.
- 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.
- 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.