• If you have been wondering whether Goldman Sachs Group is priced attractively right now, looking closely at what you are paying for each dollar of its business can be more revealing than the headline share price.
• The stock last closed at US$867.25, after a 5.9% decline over the past week and an 8.4% decline over the past month, although the 1 year return sits at 49.3% and the 3 year return is 167.2%.
• Recent coverage has focused on Goldman Sachs Group's role in capital markets and advisory work, as well as its positioning among large US financial institutions. This gives context to how investors are reacting to shorter term price moves. News around regulatory developments, deal activity and market sentiment toward big banks has kept the stock in focus for both risk and opportunity.
• On our simple valuation checklist, Goldman Sachs Group scores 4 out of 6 for being undervalued across several measures. Next we will look at how different valuation approaches line up with that score and why there may be an even more useful way to think about value by the end of this article.

Approach 1: Goldman Sachs Group Excess Returns Analysis

The Excess Returns model looks at how much profit Goldman Sachs Group can earn on its equity above the return that shareholders require and then capitalizes that surplus to estimate what the shares might be worth today.

In this framework, the company has a Book Value of $356.47 per share and an Average Return on Equity of 16.77%. Based on analyst estimates, this translates into Stable EPS of $67.43 per share and a Stable Book Value of $401.97 per share, using inputs from 14 analysts for both future return on equity and book value.

The model applies a Cost of Equity of $37.41 per share, which implies an Excess Return of $30.01 per share. That excess is what this approach treats as the economic value created on top of shareholders’ required return, and it is this stream of excess returns that is used to derive an intrinsic value estimate.

Using these inputs, the Excess Returns valuation points to an intrinsic value of about US$910.90 per share, compared with the recent share price of US$867.25, implying the shares are around 4.8% undervalued.

Result: ABOUT RIGHT

Goldman Sachs Group is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Goldman Sachs Group Price vs Earnings

For a profitable company like Goldman Sachs Group, the P/E ratio is a useful shorthand for what the market is currently willing to pay for each dollar of earnings. It links directly to the bottom line, which is ultimately what supports dividends and buybacks over time.

A “normal” or “fair” P/E generally reflects what investors expect for future earnings growth and the risk they see in those earnings. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk tends to line up with a lower multiple.

Goldman Sachs Group currently trades on a P/E of 16.46x. That compares with an average P/E of 22.76x for the Capital Markets industry and a peer group average of 26.74x. Simply Wall St’s proprietary “Fair Ratio” for Goldman Sachs Group is 19.16x. This is the P/E level suggested by factors such as its earnings growth profile, profit margins, size, industry and risk characteristics.

This Fair Ratio can be more informative than a simple comparison with peers or the industry, because it adjusts for company specific traits rather than assuming all firms should trade on the same multiple. With Goldman Sachs Group at 16.46x versus a Fair Ratio of 19.16x, the shares appear undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 20 top founder-led companies.

Upgrade Your Decision Making: Choose your Goldman Sachs Group Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple way for you to write the story behind your numbers by linking your view on Goldman Sachs Group’s future revenue, earnings, margins and fair value to a clear forecast. You can then compare that Fair Value with today’s price to help guide your decisions, all within an easy tool on Simply Wall St’s Community page that automatically refreshes when new data or news arrives. This is why one investor on the platform can reasonably hold a Fair Value near US$1,056 per share while another sits closer to US$500, each with a different but explicit story that you can review and compare for yourself.

For Goldman Sachs Group, here are previews of two leading Goldman Sachs Group Narratives:

Fair value in this narrative: US$959.20 per share

Current price vs this fair value: about 9.6% below the narrative fair value

Revenue growth assumption: 4.52% a year

• Analysts in this narrative focus on advisory, asset and wealth management, and alternatives as key drivers of more stable, higher margin revenue.
• They see AI adoption and digital projects improving efficiency and allowing more flexibility in how capital is deployed, including buybacks and dividends.
• They also flag risks around geopolitics, regulation, talent costs, private asset liquidity, and long term fee pressure that could challenge those expectations.

Fair value in this narrative: US$726.27 per share

Current price vs this fair value: about 19.4% above the narrative fair value

Revenue growth assumption: 1.83% a year

• This more cautious narrative emphasizes pressure on margins from digital competitors, fintech, regulation, and fee compression across several business lines.
• It highlights the mixed record in consumer banking and continued reliance on market sensitive activities as sources of earnings volatility.
• It allows for support from technology investment, capital returns and the franchise strength, but assumes these are not enough to justify a higher earnings multiple.

Taken together, these two narratives outline a range for how you might think about Goldman Sachs Group's potential earnings power and what you are willing to pay for it today. If you want to see the full logic and numbers behind each view, Curious how numbers become stories that shape markets? Explore Community Narratives can provide more context to help you stress test your own stance on the stock.

Do you think there's more to the story for Goldman Sachs Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.