Before I get started on my analysis of GS, let me share my method of madness on how I rank stocks. I separate them from one another by taking into account the following criteria:
Performance: Short term, intermediate term and long term where possible. I compare the performance of the stock with its peers and against the other 3,565 stocks that I monitor.
Valuation: While I like performance, I have seen way too many momentum darlings come crashing back down to earth due to astronomical valuations. We have learned huge valuation lessons from incidents like the crash of the
Nasdaq in 2000-2001, the crash of the housing market in 2006, and many other such bubbles. Valuation does matter!
A healthy stock chart: I don't like sideways trends (Apple would be a good example of this), I despise downtrends (Inverse ETF's would be a good example of this) and I get very nervous with extended uptrends, unless the valuation is still compelling. And of course, the most dangerous trend of all is a topping-out trend that is beginning to roll over.
Data from Best Stocks Now AppLet's start with performance of the stock. Again, I look at short-, intermediate- and long-term performance. Over the last 10 years, GS has delivered 8% per year to investors while the market has delivered 5%. Over the last five years, they've delivered 6% per year, while the market has delivered 8% during the same time frame. Over the last three years, GS has delivered 4% per year to investors while the market has delivered 14%. Over the last 12 months, GS is up 41%, while the market is up only 17%. When I rank the performance of Goldman Sachs against the other 3,500 or so that I follow, it only earns a performance grade of C. That sound pretty average to me. How can you expect above-average returns with average stocks? In my opinion, GS is NOT worthy of your investment based on performance. Now, onto valuation.