Goldman Sachs (GS +2.78%) has faced its share of challenges in recent years, primarily stemming from a slowdown in capital market activities like mergers and acquisitions and initial public offerings and the winding down of its consumer banking franchise.
That said, the stock has been on fire, surging 116% since November 2023 as the investment bank crushed earnings expectations last year. Looking ahead, Goldman Sachs anticipates a meaningful shift that could benefit its primary business in 2025 and beyond.
With the stock up significantly in the past year, investors may be wondering if now is a good time to buy. If you're thinking of scooping up Goldman Sachs, there are a few things to consider first.
NYSE: GS
Key Data Points
Capital markets activity has improved after a couple of challenging years
Goldman Sachs is one of the leading investment banks in the U.S., primarily thriving on capital markets activities like mergers and acquisitions (M&A) and initial public offerings (IPOs).
Following a record-breaking performance in 2021, the company faced significant challenges in 2022 and 2023, largely due to rising interest rates. Capital market transactions were nearly frozen as participants awaited more certainty on inflation and interest rates. In response, the bank streamlined its operations, including shutting down its underperforming consumer business.
Since then, things have been looking up. In the fourth quarter, Goldman Sachs crushed earnings expectations when it reported revenue of $13.87 billion, well above the average estimate of $12.46 billion. Meanwhile, earnings per share (EPS) came in at $11.95, compared to analysts' expectations of $8.29. It was Goldman Sachs' largest quarterly profit in more than three years.
One reason for Goldman Sachs' stellar performance last year was a pickup across its key business areas. According to the EY-Parthenon Deal Barometer, corporate and private equity M&A transactions were up 11% and 20%, respectively, in 2024.
Meanwhile, IPO markets improved in the U.S. The number of IPOs rose 28% while proceeds from those deals increased 48%. This shows a returning appetite for risk and proved well for Goldman Sachs' earnings last year.
GS Revenue (TTM) data by YCharts.
What's next for Goldman Sachs in 2025
Many in the investment banking industry are optimistic as we head into 2025. According to Goldman Sachs Chief Executive Officer David Solomon, there has been a "meaningful shift" in confidence since the U.S. election. Chief Financial Officer Denis Coleman shared that optimism and said he expected further gains in M&A and IPOs during the year.
Morgan Stanley, another major player in the investment banking industry, also posted a strong year. Analysts at that bank say they have "high conviction that we are at the early stages of a multi-year capital markets cycle" and believe Goldman Sachs is best positioned. They expect "more blowout quarters throughout 2025."
The Biden administration had been critical of large mergers and acquisitions, and companies had a high bar to reach to gain approval. For example, the Federal Trade Commission and Department of Justice have been critical of mergers and scrutinized them due to competitive impact and antitrust rules. Several large deals, including the Albertsons-Kroger and JetBlue-Spirit Airlines mergers, were terminated last year.
Image source: Getty Images.
Banks expect a different approach to deals under the Trump administration and are preparing for a resurgence in activity. According to Gregory Daco, EY's (Ernst & Young's) chief economist, "President Trump's administration is set to continue its push for deregulation across various sectors and existing governmental agencies, aiming to lighten the regulatory load on both the economy and businesses."
Is it a buy?
Goldman Sachs stock has surged since its late October 2023 low, helped by falling interest rates, a return in appetite for risk, and a resurgence in dealmaking activity.
Investors may be hesitant to buy the stock at these levels, but it trades at a reasonable price, about 14 times this year's projected earnings. Given the more constructive backdrop for dealmaking and Goldman Sachs' outsized role in the industry, I think the stock continues to be a solid buy for investors today.
