Assessing Goldman Sachs After a 301% Five Year Surge and Business Model Shift
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If you are wondering whether Goldman Sachs Group is still a smart buy after its huge run up, or if you are late to the party, you are in the right place to unpack what the current share price actually implies.
The stock has climbed 3.5% over the last week, 8.7% over the past month, and is up a striking 48.6% year to date, capping a 45.4% 1 year gain and a 301.0% increase over 5 years that has clearly shifted how the market views its risk and growth profile.
Recent headlines have highlighted Goldman expanding deeper into fee based businesses and sharpening its focus on core investment banking and trading. Investors often interpret these moves as a pivot toward more durable earnings power. At the same time, regulatory and macro chatter around capital requirements and deal activity has kept expectations in flux, contributing to these sharp price moves.
Despite the strong run, Goldman currently scores a 3/6 valuation check on our framework, suggesting it screens as undervalued on half of the key metrics we track. Next we will walk through the main valuation approaches behind that score, and then finish with a more intuitive way to decide what Goldman is really worth in a diversified portfolio.
The Excess Returns model looks at how much value Goldman Sachs can create above the minimum return investors require on its equity. Instead of focusing on near term earnings swings, it asks whether each dollar of shareholder capital is likely to keep earning more than its cost over time.
For Goldman, the starting Book Value is $348.02 per share, with analysts expecting this to rise toward a Stable Book Value of $384.49 per share. On that capital base, the Stable EPS is estimated at $58.46 per share, implying an Average Return on Equity of 15.20%. Against a Cost of Equity of $48.06 per share, this leaves an Excess Return of $10.40 per share that is then projected and discounted to estimate intrinsic value.
Under this framework, the Excess Returns valuation suggests the stock is 71.9% overvalued relative to its intrinsic value, indicating the market is pricing in more sustained profitability and growth than the model supports.
For consistently profitable companies like Goldman Sachs Group, the price to earnings (PE) ratio is a straightforward way to gauge how much investors are willing to pay for each dollar of current earnings. It ties the share price directly to the bottom line, which makes it a useful cross check against more complex valuation models.
What counts as a normal or fair PE depends largely on two things: how quickly earnings are expected to grow, and how risky or cyclical those earnings are. Faster, more predictable growth tends to justify a higher PE, while more volatile or uncertain profits usually warrant a discount. Goldman currently trades at about 17.0x earnings, which is below both the Capital Markets industry average of roughly 24.3x and the broader peer group average of around 31.2x.
Simply Wall St’s Fair Ratio framework refines this comparison by estimating what PE Goldman should trade on, given its specific earnings growth profile, profitability, industry, size and risk factors. For Goldman, that Fair Ratio is 19.1x, implying the market is applying a modest discount relative to what these fundamentals would justify. With the current 17.0x multiple sitting below the 19.1x Fair Ratio, the stock appears modestly undervalued on this metric.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply the stories investors tell about a company, translated into numbers like future revenue, earnings, margins and an assumed fair value. A Narrative links what you believe about Goldman Sachs Group, such as steadier fee based growth or higher regulatory risk, to a concrete financial forecast and then to a specific fair value estimate, making the logic behind your valuation transparent. Narratives are easy to build and explore on Simply Wall St’s Community page, where millions of investors share and update their views as new information like news or earnings arrives, so fair values adjust dynamically instead of staying static. Once you have a Narrative, you can quickly compare its Fair Value to the current share price to inform your view on whether Goldman looks attractive at the current price. For example, one Goldman Sachs Group Narrative on the Community might see potential value up to around $815 per share, while a more cautious one might only support about $538, highlighting how different, clearly framed assumptions can drive very different yet understandable valuations.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include GS.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
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