Shares of leading investment bank Goldman Sachs (GS 1.83%) fell as much as 4.7% on Monday, before recovering somewhat to a 1.9% decline on the day.
Goldman delivered what appeared to be a solid earnings beat. However, there were a few key performance indicators (KPIs) that might have given some investors reasoned to be concerned.
NYSE: GS
Key Data Points
A beat across the board, but provisions rise, and backlog falls
In the first quarter, Goldman delivered a 14.4% revenue growth to $17.23 billion, with earnings per share up 24.3% to $17.55. Both figures handily beat expectations, especially the EPS figure, which beat by $1.16.
Yet despite the earnings beat, there were a few wrinkles. The first quarter saw exceptional investment banking activity, driven by completed mergers. That figure tends to be somewhat lumpy from quarter to quarter, even though more blockbuster IPOs are planned for later this year. Goldman also disclosed that its investment banking fee backlog declined slightly last quarter, perhaps signaling a deceleration or quarterly decline ahead.
Additionally, Goldman's provision for credit losses was slightly higher than expected, compressing its net interest income margins on a quarter-over-quarter basis. On the call, management noted that a combination of macroeconomic uncertainty, single-name impairments, and portfolio growth contributed to the higher provisions.
Despite that, CEO David Solomon also indicated that Goldman would continue to invest in private credit. That is in spite of recent market volatility in private lenders and fears over the safety of those loans. While it could be seen as a positive that Solomon remained confident in Goldman's ability to write private loans going forward, some market participants have grown wary of this sector, and might have hoped for a more conservative posture, given recent headlines.
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Goldman has had a strong run
Despite today's slight pullback, Goldman's stock has had a very strong recent run, up roughly 80% over the past year and 173% over the past five years, with a price-to-earnings valuation that has risen into the high teens.
The bottom line is that there wasn't much wrong with this report, and today's pullback can be chalked up to profit-taking on a few imperfections in some of the numbers, which were by no means disastrous. Still, for long-term investors, there's no reason not to continue holding this premier investment bank stock, especially with a slate of major IPOs coming later this year.
