Dear Reader,
Goldman Sachs, the global investment banking firm, is valued at 120 billion USD currently by public markets.
Based on profit and revenue achieved by Goldman Sachs in the last four rolling quarters or in the calendar 2020 Goldman Sachs looks undervalued. A lot. Based only on Price/Earnings ratio I would say that Goldman Sachs should be worth around 200 billion USD.
Investment banks like Goldman Sachs and Morgan Stanley, however, are trading at a steep discount to technology companies and even at a smaller discount to the overall S&P 500 market currently. The main reason, as far as I am concerned, is the huge value destruction investors in banks and brokerages experienced in 2008 and 2009. Another reason is that the revenue of Goldman Sachs is not growing as fast as in 2006 and 2007.
Yes, in Q1 2021 Goldman Sachs' revenue basically exploded driven mainly by the booming equity and fixed income underwriting. However, as the Archegos case recently showed, investment banks are only one large false bet away from their viability being threatened. That is inherent for the investment banking business. Investment banking, especially the brokerage wing, is a high risks, high reward business.
One has to risk a lot to win a lot. If the Q1 2021 business boom continues for three more quarters or for 2 years altogether, however, Goldman Sachs could end up being worth around 250 billion USD in the next 3 years.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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