Watching out for the earnings of a company is very important for successful stock trading and investing. While online trading brokerages have made trading stocks quite popular, the art of observation during the earnings season is ultimately the guiding force behind the strategic decisions you could make.
Goldman Sachs Earnings Miss Was Surprising
Something rare happened these days in the stock market. Goldman Sachs ($GS) fell short of earnings expectations. Though it had beaten expectations for all the three past quarters, the third-quarter results were disappointing. So should you be worried, if you’re an investor or are planning to invest?
It’s easy to get drawn by the headlines. Revenue and earnings need not exactly represent the state of a company. Though they’re often seen as painting a picture of the current strength of the company’s business model, they can also be seen as a temporary blip, if it is only a feature of one quarter. Take the case of Goldman Sachs. Its $4.79 per share earnings was just short of estimates by $0.02. Its $8.32 billion revenue was in fact slightly more than experts’ expectations.
Goldman’s Amazing Record Makes This Hard to Swallow
The earnings estimates are significant here because of Goldman’s history of beating earnings expectations of analysts. Looking back to the period between 2018 Q4 and Q1 and Q2 this year, the bank could earn $3.33 more per share than what analysts predicted. And in each of the past three quarters, it beat analyst expectations by 24%, which is massive. Such performances made investors expect something of the same in Q3 this year, which is why they were disappointed.
Penetrating Beyond the Headlines
Motley Fool analyst Matthew Frankel digs deeper to get to the root of the matter. As he discovers, there’s a lot more to Goldman’s performance than just the headline figures. Digging deeper, we find that the bank’s trading revenue has actually beaten expectations in terms of equities and fixed income. Its fixed-income trading revenue was $1.41 billion, exceeding expectations by $50 million, while its equities trading revenue was in the region of $1.88 billion which exceeded expectations by $90 million.
A Lot of Positives to Take Home
What would attract investors is the fact that the bank’s quarter over quarter book value rose by 2.2% to $218.82. As per the present stock price, Goldman is trading for over 7% below the book value, which is a significant discount. Its consumer banking business also keeps growing at an impressive rate. In fact, revenue from the loan and debt security sections of the lending and investing business rose year over year by 10%. Its investment management business has under supervision $1.76 trillion, which is at an all-time high. In terms of completed and announced mergers & acquisitions also, Goldman continues to maintain the greatest market share.
To conclude, Frankel estimates that there is no need for investors to be worried. The overall slowdown in the investment banking services market can be blamed for much of the disappointment in the bank’s third quarter performance.
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