This Stock Is a Buy — Even After a Disappointing Quarter

This chart compares Goldman Sachs to its banking counterparts.

Even if markets return to more normal state, if less lucrative, levels, "Goldman's earnings should be much greater than they were prior to the epidemic," Devin Ryan, an analyst at JMP Securities, argues. On the stock, he has an Outperform rating and a $460 price target.

Ryan asserts that the corporation is receiving little credit for some of its more recent ventures, most notably Marcus, a digital consumer banking franchise with more than $100 billion in deposits, 10 million clients, and $1.5 billion in income in 2021. Goldman does not publish its consumer bank's profitability. However, public digital banks are valued at a multiple of revenue, implying that the Goldman platform is worth at least $10 billion.

Additionally, the firm has a rapidly increasing business managing alternative assets for customers, including private equity. With $2.5 trillion under management across a number of platforms, its asset management division may be worth $30 billion or more, or almost a fourth of the firm's market value.

These companies contribute significantly to Goldman's objective of diversifying its revenue stream.

Investors continue to face difficulties. Despite its expanding consumer business, Goldman is not betting on higher interest rates, as other banks do.

Another concern is that Goldman's spending are increasing rapidly, notably pay, which increased 33% to $17.7 billion last year. Investors are concerned that the corporation would have to pay a higher price to recruit and retain talented employees .

Goldman downplays these worries.

"As a result of our pay-for-performance attitude, remuneration is flexible in both directions," Goldman's chief financial officer, Denis Coleman, tells Barron's. "If this year is not the same as 2021, we may remove it."

By the end of 2022, Goldman's book value might reach $310 per share, implying that the company trades at 1.1 times ahead book value. This implies that there is little disadvantage. Intangible assets account for approximately 5% of the book value. Additionally, the business adheres to the traditional concept that continually increasing book value is a critical corporate objective.

Goldman is likely worth far more than book value, given its lucrative capital-light businesses, such as investment banking and asset management. Earnings of $40 per share in 2022 would be quite fascinating—nearly double the level in 2019—and would translate into a good return on equity of roughly 14%. In 2021, Goldman earned a record $59.45 per share.

Its shares currently yield 2.3 percent following a 60 percent increase in the dividend in 2021. Another dividend rise in 2022 is a great strong bet.

Goldman is scheduled to inform investors in February on its early 2020 strategic plans. It has thus far succeeded in achieving its three primary objectives of developing and enhancing existing businesses, diversifying its business mix, and increasing previously unsatisfactory profits. Investors will be watching to see if Goldman increases its target return on equity, which is now set at 13%. "We have a top-five asset manager as part of Goldman Sachs," Coleman explains. Within Goldman Sachs, we have a consumer digital bank with distinct products that is growing. Within Goldman Sachs, we have a world-class investment bank and a world-class sales and trading business."

The aggregate of those components is almost certainly substantially more valuable than Goldman's current market capitalization of $120 billion. Its franchise continues to grow in strength.