Wall Street on sale: Goldman and Robinhood trade near book value
Wall Street is on sale with much of the stock market, as an industry leader
Goldman Sachs Group
is trading near its book value for the first time in two years.
Small securities companies like
Jefferies Financial Group
(symbol: JEF) and
(COWN) are trading below tangible book value. banking giant
(C) has one of the cheapest stocks among major financials, at less than 60% of tangible book value.
Buying securities companies below book value could reward investors since book value – or equity – is an indicator of liquidation value. Companies like Goldman Sachs (GS) have remained highly profitable and have asset-light businesses like investment banking and asset management that are likely worth much more than book value.
Book value includes intangible assets, including goodwill, while book value is a more conservative measure that excludes intangible assets.
Investors fear that investment banking activities, already sluggish in the first quarter, will weaken and trade results will suffer.
Goldman shares are down 0.3% at $300.70 in recent trades, just above their March 31 book value of $293 per share, and are down 30% from from their all-time high of $426 in November 2021.
Jefferies is down 0.3%, at $30.45, and trading below its tangible book value of $33 per share. Cowen is down 0.9% to $23.54, which is below its tangible book value of $27 per share. Citigroup is down 1.8% to $46.83 after hitting a new 52-week low during the session. It is trading well below its tangible book value as of March 31 of $79 per share.
Evercore ISI Group analyst Glenn Schorr said Barrons Thursday morning, Goldman Sachs stock looks attractive. “GS at book is meant to be bought and eventually works,” he noted in an email. Barrons wrote favorably about Goldman, including an article earlier this year when the stock traded around $345.
Investors are putting the company’s 2021 record in the rearview mirror. Goldman earned a record $59.45 per share and generated an outrageous return on equity of 23%. First-quarter earnings of $10.76 per share were down 42% from the prior quarter, but Goldman still earned a return on equity of 15%.
Goldman’s results are harder to predict than banks’
Bank of America
(BAC) due to its reliance on trading and investment banking, but Goldman is expected to earn around $38 a share this year. The stock trades for around eight times forward earnings.
The company has exposure to the stock market through an $18 billion portfolio of equity investments, most of which is private equity. Goldman posted a loss of $367 million in the first quarter on this portfolio, compared with a gain of $3 billion the previous year, and could face write-downs in the current quarter if markets do not improve.
Private company valuations move more slowly than public market valuations, but the values of many private tech companies have fallen sharply this year. About half of Goldman’s portfolio is in technology, media and telecommunications, and real estate.
Goldman has consistently been profitable even in tough quarters like the first three months of 2020, and its trading business often does well in volatile markets.
Jefferies and Cowen derive most of their income from investment banking. Jefferies now trades at eight times forecast 2022 earnings and Cowen at around five times estimated 2022 earnings.
Depressed online broker
Markets (HOOD) also trades around book value. Its shares rose 4% on Thursday to $8.48, matching its book value of about $8 per share, and much of that book value is in cash.
Robinhood, unlike Goldman, Jefferies and Cowen, has operated at a loss and is not expected to turn a profit this year based on the
set of facts
consensus. The stock is down about 90% from its 2021 high and now has a market value of $7 billion. Robinhood is expected to lose more than a dollar per share in 2022.
Write to Andrew Bary at [email protected]