Goldman Sachs - Too Cheap to Ignore?

GS and the general financial services sector as a whole has faced extreme trauma over this past month. However, one that particularly stands out is the "bad guy" of the industry who has taken the equivalent to a roundhouse kick to the face, and the chart shows it. But does this mean that someone looking for a dip shouldn't pick up strong equity on a discount? I say no, lets be greedy while other are fearful just like that one guy said. Warren something... I don't really remember his name.

Let's examine the numbers before we do the finance equivalent of astrology. This means that value investing and it's rather elementary techniques are going to give us some sort of indicator of a buy or a sell. Here's what you need to know.

1. Sachs has an attractive dividend yield of 2.14% (11.50/share) and a gleaming dividend payout ratio (DPR) of 21.50%.
2. It is far from its high annual EPS sitting at 41.21 sliding from its high last December at 60.35.
3. It's price to earnings ratio (PE) is lounging nicely at 14.00 meaning we are at a generally cheap share price. This metric is what we're looking for.
4. Unfortunately, it has a rather higher price to book ratio (PB) at 1.64 which somewhat contradicts the PE ratio examined in #3.
5. Other metrics to keep in mind is an EV/EBITDA at 53.90 and a PEG at 16.23 which are both considered undesirable to investors.

So as far as statistics are concerned, Goldman is sending some mixed signals making a decision difficult at the moment. This means we're going to have to examine the general sector sentiment and general outlook.

Firstly, I'd like to point out Goldman's enterprise value. Sachs' EV is currently reported at 855.93 billion, 673 billion (78.63%) being debt (long term or short). This means GS is a debt heavy company and we all know how debt works (the entity taking on the debt owes principal + interest). Well, this means that GS is heavily going to be influenced by interest rates even considering their strong revenue. So, if we plan on interest rates being lowered long term (which I'm sure we all do), Goldman will be able to borrow from the Fed at a cheaper interest price while simultaneously owing account holders and bond holders less in interest (or APY yield for that matter). However, in the event that inflation runs wild and the Fed raises rates, GS will face some turmoil along with the other commercial investment banks.

Great, so now for the fun part. Let's see what the charts have to say about this and what it could be implying.

Here is the 4H chart looking back into last October.



As you can see, Goldman posted a sweet rally followed by our current pullback. However, we are being flashed with various bullish technical patterns and a strong explanation for the drop (even considering the tariffs threats and indices pullback). In summary, we are examining a stock in gradual freefall towards what appears to be several safety nets.

On a psychological level, I find that most investors in the business of "smart money" wont let Goldman drop too low before they put their boot down. I also imagine this will happen pretty soon, but we need to hold the $540 price level.

As far as the MACD is concerned, we are experiencing weakness from the buyers are the bears are clearly on offense.



And lastly, the GS implied volatility shows that options traders aren't pricing in anything particularly unusual, and the most usual movement for the market is to climb higher so that's good news.



So, what's the conclusion. In my humble opinion, I believe that Goldman Sachs' stock is trading too low to not buy. Financially, the company is not showing anything particularly concerning and may just need to show some strength before the mass cash chases this play. As of right now, I am long on GS considering the financial statistics, general industry sentiment, and technical analysis which was used as an assistance tool. This trade could be last anywhere from 1 day to 1 year, but I am prepared to hold for much longer.