Goldman Sachs' surge isn't surprising as the company benefited from the Federal Reserve's ultra low rates which led to lots M&A, debt issuance, and IPOs. However, recent results indicate that the company's momentum remains intact despite a lower growth rate for bond trading revenue.
Inside the Numbers
In Q2, Goldman Sachs reported $15.02 in earnings per share which was higher than $10.24 expected by analysts due to strength in investment banking and several IPOs. This was more than a 100% gain from last year's $6.26 per share in earnings. Revenue came in at $15.4 billion which beat analysts' expectations of $12.2 billion in revenue. Shares closed 1% lower despite the strong report due to a weak market and selling in financial stocks.
Investment banking revenue was the second-highest ever at $3.6 billion, following last quarter's record performance due to a strong IPO market. So far, $135 billion has been raised via IPOs which is significantly higher than the average of $53 billion over the last 5 years. The IPO pipeline remains full for the remainder of the year as well.
Goldman's trading businesses slowed down due to lower volatility. This unit accounted for $4.9 billion in revenue, a decrease from $7.6 billion in 2020's Q2. Asset management beat expectations at $5.1 billion which marked a record.
Goldman also announced a 60% increase in the company's dividend to $2 per share, starting in the next quarter. This follows many financial companies also raising dividends and increasing buybacks as a result of the Fed loosening its capital requirements.
Stock Price Outlook
Goldman Sachs has performed very well, however its earnings growth has outpaced the recovery in its stock price. This is also reflected in its price to earnings ratio of 6.7 and forward price to earnings ratio of 9.9. Both are significantly below the broader market and make the stock even more attractive.
Given its earnings momentum and cheap valuation, investors should continue to look to add shares on weakness.