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3 Reasons Goldman Sachs (NYSE:GS) Stock is a Buy After Q1 Earnings

Thursday, April 15, 2021 | Sean Sechler
3 Reasons Goldman Sachs (NYSE:GS) Stock is a Buy After Q1 EarningsAnytime a company posts record earnings like Goldman Sachs (NYSE:GS) just did, it’s a good idea for investors to take note. It’s all the more impressive given this leading investment banking and securities company’s extended history of delivering strong results. The banking sector has been impressive in 2021 given the prospects of an economic recovery and rising interest rates. It’s also worth mentioning that the Federal Reserve has stated it will remove restrictions on dividends and share buybacks for banks if they can handle upcoming stress tests.

All of this adds up to a very bullish market environment for companies like Goldman Sachs, and it’s starting to show based on the company’s earnings. The stock could be a strong buy at this time, and here are 3 reasons why.

Massive Earnings Beat

Companies beat their earnings estimates all of the time in the stock market, but Goldman Sachs Q1 beat was nothing less than extraordinary. The investment banking, securities, and investment management firm smashed analyst estimates with EPS of $18.60 on revenue of $17.7 billion. The consensus estimates from analysts were $10.22 EPS and $12.6 billion, which means that Goldman’s recent quarter far surpassed all expectations. The fact that net revenues in Q1 nearly doubled and that EPS increased by over 498% from a year ago confirms that this bank is rebounding quite nicely from the impacts of the pandemic.

Buying a company based solely on one good earnings report isn’t normally the best approach, especially since the market tends to focus on what the company will do in the future. However, these strong earnings numbers should not go overlooked by investors and perhaps are a sign of good things to come from the iconic bank in 2021. If anything, Q1 is a testament to this company’s ability to adjust to difficult circumstances and come out on top, which is a truly valuable quality in today’s rapidly changing financial environment.

Investment Banking Division on Fire

One of the most attractive components of Goldman Sachs is its investment banking division, which provides financial advisory services and helps companies to raise capital to grow their businesses. It’s one of the leading names in M&A and underwriting, which is important because reputation is everything in the investment banking industry. Based on the numbers we are seeing it’s clear that this segment of Goldman Sachs is firing on all cylinders.

Goldman Sachs reported record quarterly investment banking net revenues of $3.77 billion for Q1, up 73% year-over-year. This increase was largely driven by record Equity underwriting net revenues thanks to strong initial public offerings activity. With the IPO market expected to remain hot for the near future and the company’s backlog at record levels, it won’t be surprising to see Goldman Sachs deliver big numbers for the rest of the year. If you are an investor looking to gain exposure to the incredibly lucrative investment banking industry, look no further than Goldman Sachs.

A Great Option for Capital Market Bulls

Finally, investors should be attracted to Goldman Sachs at this time due to the company’s strong profits in its Global Markets unit. As a company that generates roughly half of its total revenue from client execution activities related to market-making in a variety of products such as fixed income, currencies, commodities, and derivatives, Goldman is well-positioned to benefit from the current “risk-on” market environment.

The truth is that Goldman Sachs attracts some of the most talented and experienced traders in the world, and if you are bullish on capital markets in general you should be interested in this stock. The company’s Global Markets segment generated $7.58 billion quarterly net revenues in Q1, which is the highest figure since 2010. Think of it this way – by adding shares of this bank you essentially have Goldman’s team of top-notch traders working to add value to your portfolio.

Final Thoughts

The bottom line here is that Goldman Sachs is one of the premier financial stocks to own. The stock offers a 1.53% dividend yield and the fact that Goldman Sachs returned $3.15 billion of capital to shareholders last quarter shows the company’s commitment to rewarding long-term buyers. This strong Q1 earnings release could be a catalyst in the near term, and the fact that the stock is in a three-weeks-tight pattern of consolidation means that it might be on its way to higher prices soon.

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7 Low-Priced Dividend Stocks Under $10

The recent trading activity surrounding low-priced stocks like GameStop (NYSE:GME) is a reminder to investors of the high-risk nature involved with these stocks. Often when a stock trades for under $10 (also termed a penny stock), it is trading that low for a reason. The company may not be profitable, or in the case of GameStop, it finds itself with a business model that no longer fits with consumer trends.

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View the "7 Low-Priced Dividend Stocks Under $10".

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
The Goldman Sachs Group (GS)2.2$354.40-1.5%1.41%14.93Buy$358.19
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