Is Goldman Sachs Stock A Smart Investment?

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The world’s second-largest investment banking firm, Goldman Sachs (GS), exhibited nimble business execution amid the recent Archegos sell-off and delivered record profits in the first quarter. However, given President Biden’s plans to hike capital gains taxes along with corporate taxes, will GS be able to maintain its stellar performance?

Goldman Sachs Group, Inc. (GS - Get Rating) is known for its top-flight investment banking and asset management services globally. It is the second largest investment bank in the world based on its 2020 revenues. GS is one of the few multinational investment banks that emerged from the Archegos sell-off relatively unscathed.

GS sold approximately $10.50 billion worth Archegos-related shares on March 26, which ultimately triggered the margin call. And thanks to the firm’s first mover advantage, it was able to avoid significant losses in exiting its position. Shares of GS have gained 25.5% year-to-date.

Owing to the firm’s quick decision and trade settlements during one of the largest margin calls in history, GS delivered record revenues and earnings growth at a time when most major investment banks downgraded their fiscal first quarter outlooks. GS’ net revenues increased 102% year-over-year to $17.70 billion in the first quarter ended March 31, 2021. Both its net income and EPS increased 498% from the same period last year to $6.71 billion and $18.60, respectively.

Here’s what we think could shape GS’ performance in 2021:

Robust Profit Margins

GS’ 88.78% trailing-12-month gross profit margin is 61.5% higher than the industry average 54.99%. Its return on sales of 29.33% is 22% higher than the industry average 24.05%, while its capex/sales of 12.27% is significantly higher than the industry average 2.18%.

Also, the company’s ROE and ROA of 17.04% and 1.16%, respectively, compare favorably with  industry averages.

Impressive Financial Outlook

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