Investment banking giant Goldman Sachs (NYSE:GS) has sharply outperformed the market and even many of its financial peers over the last year, rising by more than 56 percent in 12 months and more than 30% in just the last three.
Why is Goldman Sachs up so much, and is the stock still looking like an attractive buy at today’s higher prices?
The Forces Driving Goldman’s Shares Higher
To a large degree, perceived reduction in macroeconomic worries explains the recent increase in GS share prices. Shares of the investment bank reached their YTD low point of about $460 in early April, driven by worries about the reciprocal tariffs proposed by the Trump administration at the time.
Since then, the market has become less concerned about volatility created by hasty tariff action. With investor sentiment picking back up, Goldman has been a natural beneficiary.
Similarly, GS shares have benefited from an increasingly bullish outlook around rate cuts. Goldman itself now projects three rate cuts later in the year, resulting in a cumulative cut of 75 basis points to the Fed’s baseline interest rate. Such rate cuts will likely bolster stocks in general and have a positive effect on businesses involved in trading and investment banking.
The market also seems to be pricing in lower recession risks at the moment than it has through much of this year. Although the chances of a recession in 2025 still aren’t negligible, a downturn seems like much less of an immediate threat than it did as recently as a few months ago.
This generally improved sentiment has had an especially strong effect on financial stocks, and GS hasn’t been the only beneficiary. JPMorgan Chase (NYSE:JPM), for instance, has lagged Goldman Sachs but still risen by nearly 20 percent in the last 90 days.
These macro factors have been added to by Goldman’s own rather positive Q1 earnings report, released on April 14th. For the quarter, the business generated net revenues of $15.06 billion, up 6 percent from the year-ago quarter and 9 percent from Q4 of 2024. EPS totaled $14.12 per share, and annualized return on equity increased to 16.9 percent. Book value also increased by 2.2 percent to $344.20.
ROE isn’t the only profitability metric where Goldman Sachs performs quite well. Over the last 12 months, the business has also delivered a 27.4 percent net margin. Return on invested capital has been considerably lower at 3.2 percent, but there seems to be little disputing that Goldman Sachs is doing a solid job of creating value for its shareholders.
Goldman’s recent results weren’t isolated, instead building on what have become fairly long-term growth trends. The business has delivered six consecutive quarters of both revenue and earnings growth, a fact that has also helped support the surging share prices over the last year. Looking back over a longer horizon, Goldman’s annual revenues increased from $44.56 billion in 2020 to $53.51 billion in 2024. EPS has followed a similar trend, rising from $24.74 in 2020 to $40.54 last year.
Best of all, these trends don’t seem to be ending yet. On a short timeline, Goldman’s rally is expected to stay strong in July, though traders are expecting a slowdown in August. The real story for long-term investors, though, is the fact that Goldman’s EPS is expected to keep rising at a compounded rate of over 13 percent through the next 3-5 years.
While this may not produce the kind of explosive gains GS has delivered in the last few months, a long runway of solid, sustainable earnings growth could be deeply positive for investors planning to buy and hold the stock.
Is Goldman Sachs a Buy Now?
In terms of valuation, one of the first things investors will likely notice when it comes to GS is the fact that the stock has moved well beyond the consensus analyst forecast range. From its current price of $707.75, Goldman Sachs would fall more than 16 percent if it corrected to the average price target of $593.37. With the highest price target currently at $720, GS has settled well into the upper range of what analysts see as its fair value.
With that said, GS still doesn’t look entirely unreasonable from a value perspective. The stock trades at 16.4 times earnings, 2.0 times book value and 4.3 times trailing 12-month sales. Goldman Sachs’ P/E ratio is noticeably above the sector average of 12.0, but its price-to-earnings growth ratio is actually below average, suggesting that GS could still be priced at a discount when its growth potential is factored in.
One of the best tailwinds for GS right now is the fact that the business continues to have strong liquidity. As of Q1, Goldman Sachs still had $167 billion worth of cash and cash equivalents on hand, giving it a very good position from which to pursue future investment activities.
The business was also the global leader in mergers, acquisitions and equity offerings in Q1. With the chance for lower market volatility and a better-than-expected macroeconomic outlook ahead, the investment bank seems well-positioned to keep its performance up.
It’s also worth considering that Goldman Sachs is still returning cash to its shareholders through both dividends and share buybacks. GS shares currently yield 1.7 percent, and Goldman Sachs’ dividend payout ratio is only a bit over 30 percent.
Moreover, management approved an additional $40 billion in share repurchases in Q1, potentially setting the stage for considerable repurchases ahead. Goldman’s management has spent most of the period since 2011 significantly reducing the number of outstanding GS shares, and it’s likely that investors will keep seeing their ownership concentrated through further buybacks for the foreseeable future.
Overall, Goldman Sachs looks like a potentially good buy at the moment, even if its valuation is running toward the high side. The combination of strong current profitability, ample potential for forward growth and a generous program of adding to shareholder value through dividends and buybacks could all work to support gradually higher prices over time. Even though forward returns are unlikely to be as strong as what GS has delivered over the last year, the stock could still be a good long-term holding in the financial sector.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.