Goldman Sachs Group stock has been the worst performer of big banks lately and came under renewed pressure after comments from CEO David Solomon about Goldman's big trading business.
Today, the stock no longer looks richly priced. Barron's saw the writing on the wall in early June when shares were trading at nearly $1,100 each.
We pointed out that Goldman shares-the stock was up an industry-leading 80% last year-in part because of its bank's leading role in technology IPOs, including the SpaceX IPO in June.
Now, the tech sector isn't as hot, and Solomon's made comments at a Barclays conference on Wednesday that didn't play well with investors.
Solomon told the audience that the company's big trading business was "a little bit softer on a relative basis" this quarter and that non-compensation expenses are expected to be up about $500 million in the current quarter relative to the second quarter-in part to technology spending.
The stock dropped 4% drop on Wednesday.
Goldman also could be feeling the weight of higher interest rates, which may dampen underwriting activity.
In June, we argued the stock looked rich relative to peers based on earnings and book value. and that it could be vulnerable to a pullback after a big run-up.
"Goldman is priced like a tech stock. Investors can find better deals elsewhere," the headline read.
That scenario has panned out.
Goldman shares were up 1.7% at $953.78 in Thursday trading, but are down 13% since we went bearish.
At the time, we made the case that JPMorgan Chase and Bank of America were better values. Since then, JP Morgan is up about 11% to $350 and Bank of America has gained 7% to $58.38. Goldman is the worst-performing stock in the KBW Nasdaq Bank Index over the past three months.
With the pullback, Goldman's valuation has reset. The stock looks more appealing. It now trades for about 13 times projected 2026 earnings of $70 a share, in line with Bank of America and JP Morgan, which fetch 13 and 14 times, respectively.
Near its peak, Goldman was trading close to 20 times the then-consensus earnings expectation for 2026 - a big premium to JP Morgan and Bank of America - and for three times book value. Both valuation measures were near highs since the company went public in 1999. Goldman now trades around 2.5 times book.
Goldman remains a powerhouse as a leading equity and debt underwriter and the go-to investment bank-along with Morgan Stanley-for high-profile tech IPOs. It also has a growing asset and wealth management business and a top trading operation involving stocks, bonds, and commodities.
A key issue with Goldman is whether it's "overearning" now because of unusually robust conditions in its key businesses. The company is expected to earn about $70 a share this year, up almost 40% from 2025.
Solomon and other Goldman executives have said the bank's earnings are more durable now, and its platforms are first class.
On Wednesday, Solomon described Goldman as "the leader in global banking and markets...and a top-five player in asset and wealth management." He added that "positions the firm very well."
Barclays analyst Jason Goldberg wrote that Solomon "emphasized that GS's larger and more durable earnings base should better withstand future market cycles while still allowing Goldman to capture market share during stronger operating environment."
Goldberg has an Overweight rating on the stock and a price target of $1,245.
There's a legitimate debate about whether Goldman is overearning now but the bank makes a strong case that profits can be higher for longer.
Price is important in investing and Goldman looks more reasonable than it did three months ago, creating a better entry point for potential buyers.