Goldman Sachs Group, Inc. (GS.US) has increased by over 61% in the past year. Is it still a good time to enter the market now?

The latest closing price of Goldman Sachs Group, Inc. (GS.US) is $893.48. Looking at the trend of the stock price, it increased by 0.6% last week, accumulated a 15.4% increase in the past month, a 55.4% increase year-to-date, and a 61.1% increase over the past year. Moreover, based on these increases, the three-year cumulative increase of Goldman Sachs Group, Inc. has risen to 178.8%, and the five-year cumulative increase has soared to 292.8%. After experiencing such a huge rise in stock price, is it still a wise investment decision to buy Goldman Sachs Group, Inc. stock at this time? Or is the market euphoria coming to an end, and investors will only face excessive risks at this price entry? The main drive behind this prosperous trend is the market's optimistic outlook on Goldman Sachs Group, Inc.'s expanding wealth management and trading business, as well as its focus on institutional and investment banking businesses (instead of the previous experiment in consumer banking). In addition, investors are increasingly interested in the management's strategic direction adjustments and capital return plans, which explains why the market sentiment is so high. Despite the current hot market situation, the market's valuation of Goldman Sachs Group, Inc. presents a mixed picture - half of the valuation indicators show that its stock price is undervalued, while the other half indicate that its valuation is within a reasonable range. Next, this article will use different valuation methods to provide a detailed analysis, and further explore a more refined pricing approach. Method 1: Excess Return Model This model aims to evaluate whether Goldman Sachs Group, Inc. has the ability to consistently earn profits above the cost of equity capital using shareholder investments. The core focus is on whether each dollar of book value can generate returns higher than the cost of equity in the long run. Goldman Sachs Group, Inc. has a book value per share of $348.02; based on the weighted forecast of future ROE by 13 analysts, its "sustainable EPS" is $58.80. The model uses an average ROE of 15.26% and a cost of equity per share of $48.16 (about a cost rate of 13.8%) to calculate an excess return per share of $10.64, meaning the bank is expected to continue generating returns higher than the financing cost. 15 analysts predict that its long-term book value will rise to $385.29 per share. Overall, the excess return model gives an intrinsic value of approximately $500.45 per share, indicating that the stock is overvalued by about 78.5% compared to the recent price of $893. Result: Overvalued Method 2: Price-Earnings Ratio For a profitable and mature company like Goldman Sachs Group, Inc., the price-earnings ratio directly links the buying price to the bank's current earnings power. Generally, companies with faster growth and lower risk deserve higher price-earnings ratios, while the opposite is true. Currently, the price-earnings ratio of Goldman Sachs Group, Inc. is 17.75 times, which is not only lower than the industry average of about 25.06 times, but also lower than the broader peer average of about 30.41 times. In this comparison, it seems that the market has given Goldman Sachs Group, Inc. a certain discount in pricing. The proprietary "Fair Ratio" evaluation system used by Simply Wall St, which comprehensively considers factors such as profit growth trends, profit quality, risk level, industry position, and market capitalization size, suggests that the reasonable price-earnings ratio for Goldman Sachs Group, Inc. should be 19.18 times. Using this reasonable price-earnings ratio as a reference standard, the current price-earnings ratio of Goldman Sachs Group, Inc. at 17.75 times is slightly lower than its fair range, indicating that Goldman Sachs Group, Inc. is currently in a mildly undervalued state rather than being overvalued. Result: Undervalued