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Nicholas Kitonyi
Nicholas Kitonyi
Articles (409)  | Author's Website |

Should You Buy Goldman Sachs or Bank of America?

Both stocks look fairly valued

January 19, 2021 | About:

Goldman Sachs Group Inc. (NYSE:GS) and Bank of America Corp (NYSE:BAC) reported fourth-quarter results on Tuesday before markets opened. Both stocks have since failed to post significant gains despite beating analyst expectations.

Both stocks appear to be fairly valued based on the Peter Lynch earnings line. However, when we look further forward, there is clearly one that looks more compelling given the expected earnings for the foreseeable future.

Highlights of Goldman Sachs' fiscal fourth-quarter results

In its most recent quarterly results, Goldman Sachs' earnings per share grew by 157.57% to $12.08, which beat the consensus Street estimate of $7.47. The company's top line rose by 17.94%, aided by increased trading activity, to $11.74 billion, which again outperformed the average analyst estimate of $9.99 billion.

The company reported 22% growth in annual revenue to $44.56 billion, up from $36.55 billion posted in 2019. Earnings per share for the period grew 18% year over year to $24.74.

Shares of Goldman Sachs are now trading at a trailing 12-month price-earnings ratio of about 17.02, which can be viewed as potentially attractive based on earnings growth prospects.

Highlights from Bank of America's fiscal fourth-quarter results

Bank of America's earnings per share fell from 74 cents in the prior-year quarter to 59 cents. This was still better than the consensus analyst expectation of 54 cents.

The company's top line for the period fell 10.1% to $20.1 billion, which was lower than the consensus Street estimate of about $20.76 billion.

Bank of America's full-year 2020 earnings per share fell to $1.87 from $2.75 in 2019, while the top line slipped to $85.5 billion compared to the previous year's equivalent of $91.2 billion.

Shares of the company are now trading at a trailing 12-month price-earnings ratio of about 16.26, which again indicates a potential case of undervaluation depending on expected earnings growth.

Valuation

From a valuation perspective, both Goldman Sachs and Bank of America appear to be trading relatively in line based on the trailing 12-month price-earnings ratio. They are also fairly valued based on the Peter Lynch earnings line of 15.

When we factor in expected earnings growth for the next 12 months, however, Goldman Sachs appears to be relatively undervalued with a forward price-earnings ratio of 12.06 compared to Bank of America's equivalent of 15.17.

And even when we factor in long-term earnings growth for the next five years, Goldman still looks more compelling with a PEG ratio of 2.37 versus Bank of America's 4.46.

In summary, Goldman looks more attractive to buy at this time compared to Bank of America. Furthermore, Goldman posted revenue and earnings growth in the most recent quarter and in full-year 2020, which promise a more attractive outlook. On the other hand, the Bank of America reported a decline in both metrics.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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