What the Business Does
The Goldman Sachs Group, Inc. operates in the financial services sector, specifically within capital markets. Founded in 1869, Goldman Sachs has established itself as a leading global investment banking, securities, and investment management firm. It provides a wide range of financial services to a diverse client base that includes corporations, financial institutions, governments, and individuals.
The Buffett-Framework Verdict
Goldman Sachs received a score of 32 in the Buffett framework, which translates to a grade of D. The verdict states: "Goldman Sachs is a brilliant trading house riding 6x leverage, and a negative owner-earnings yield of -15.9% tells me the cash leaves before it ever reaches me."
Pillar Scores
- Moat: 37
- Durability: 55
- Management: 49
- Valuation: 33
- Financial Health: 0
Strengths
- Goldman Sachs boasts a gross margin of 55.5%, indicating a high-value advisory and trading franchise.
- The company has experienced revenue growth at an annualized rate of 17.8%, suggesting it can capture more market activity when conditions are favorable.
- An operating margin of 20.5% showcases cost discipline in its core operations.
- The share count has decreased by 2.8% per year, enhancing per-share ownership.
- The Goldman brand remains strong, helping to maintain a durability score of 55.
- An earnings yield of 5.9% provides some accounting return to investors.
Concerns
- The valuation appears rich, with a negative owner-earnings yield of -15.9% and a P/E ratio of 17.0, justifying a low valuation score of 33.
- Return on invested capital is low at 0.9% for the trailing twelve months and 2.2% over five years, indicating it may not meet the standards of a wonderful business.
- Financial health is concerning, with a debt-to-equity ratio of 6.1x and a net-debt-to-EBITDA ratio of 29.8x, resulting in a financial health score of 0.
- Interest coverage is weak at 0.34, meaning operating earnings do not adequately cover interest expenses.
- Free cash flow is negative at -2.75 times net income, indicating profits are not converting into cash for shareholders.
- Earnings have declined at an annual rate of 3.7%, with historical volatility leading to significant profit unpredictability.
Valuation and Margin of Safety
As of 2026, Goldman Sachs trades at a price of $1,098.20 with a market capitalization of approximately $324 billion. The stock has a trailing twelve-month P/E ratio of 18.30, which is high relative to its owner-earnings yield. With an analyst target price of $995.89, there may be limited upside in the near term. Given the company's financial metrics, including a negative owner-earnings yield and low return on invested capital, potential investors should consider the risks associated with its current valuation.
The Bull Case
Proponents of Goldman Sachs may argue that its strong brand recognition and high gross margins position it well in the capital markets. The firm's ability to capture revenue growth during favorable market conditions reinforces its potential for long-term success. Additionally, the shrinking share count could be seen as a positive for per-share earnings, making it attractive for value-focused investors.
The Bear Case
Conversely, the bear case hinges on the company's high valuation and concerning financial health. With negative owner-earnings and low return on invested capital, the investment thesis may be weak. The high debt levels and poor interest coverage present significant risks, especially if market conditions worsen or funding costs rise. Additionally, historical earnings volatility raises alarms about the predictability of future profits.
The Bottom Line
Goldman Sachs presents a mixed investment profile in 2026. While it boasts strong margins and a reputable brand, its high valuation and financial health concerns warrant caution. Investors should weigh these factors carefully before making decisions. This is educational, not financial advice.
For more insights, check the Buffett verdict and visit the Goldman Sachs stock page.