Lubin Investment · Blog

Is Goldman Sachs (GS) undervalued in 2026?

2026-07-08 ·

GS: see the full analysis on Lubin Investment

Goldman Sachs shows solid profitability and a price that, on cash generation alone, looks cheap: 5.7 times free cash flow versus a sector average of 16.4 times. But a bank isn't judged quite like a regular stock, and a quiet weakness in its margins deserves a look before calling this a bargain.

Key takeaways

The number that stands out

I run every stock through the P/FCF test: the share price divided by the free cash flow it generates each year. A P/FCF of 12 means you're paying today for twelve years of that cash. Goldman Sachs trades around 5.7 times its cash, while the rest of investment banking and brokerage peers sit closer to 16.4 times. Out of 48 comparable companies in my screener, Goldman ranks among the cheapest third.

A number this low deserves the reverse question from usual: what does the market know that I don't? Or is investment banking, cyclical and seen as less exciting than tech, simply out of favor with investors who'd rather pay up elsewhere?

Is it a good business?

On profitability, Goldman checks the box: a 14.1% net margin, meaning out of every 100 dollars of revenue, 14 remain as net profit after all expenses. Growth is solid too, 17.3% a year on average over five years, driven by trading and asset management. It also buys back its own shares (share count down 3.22% a year), a sign management prefers returning capital to shareholders rather than hoarding it.

Another solid number: its ability to turn accounting profit into real cash comfortably exceeds 100% (2.96 times), a sign the reported profit isn't an accounting trick.

The weak spot the market is right to watch

My 'expanding margins' criterion checks whether a company's revenue grows faster than its costs over five years. For Goldman, it fails: costs (compensation, technology, regulatory compliance) grew faster than revenue over the period. That's not disqualifying, but it partly explains why the market isn't rushing in despite revenue growth. A bank that's growing but seeing margins compress is a different story than one growing while becoming more efficient.

Why P/FCF is a bit misleading for a bank

I have to be honest about a limit of my method here: free cash flow, as I calculate it for most companies, doesn't translate well to banks. Their balance sheet is made of loans, deposits and regulatory capital, not factories or inventory. My cash return on invested capital metric isn't even calculable for Goldman with my usual formula. I explain in detail why I look at banks differently in my dedicated article on bank valuation: P/FCF stays a useful signal in relative comparison (Goldman versus peers), much less so in absolute terms.

How I'm calling it

Goldman Sachs checks most of my quality criteria, trades meaningfully cheaper than its investment banking peers, pays a 1.7% dividend with a reasonable 28% payout ratio, and reports next on July 14, 2026. The weak spot, margin compression, deserves watching over coming quarters rather than being ignored. It's not a perfect gem, but a solid bank priced, on cash generation alone, below its sector average.

FAQ

Is Goldman Sachs a quality stock?

It checks most of my objective criteria: profitability, revenue growth, buybacks, and turning profit into real cash. Its weak spot is margin compression over five years.

Why is Goldman Sachs so cheap on P/FCF?

It trades at 5.7 times free cash flow versus 16.4 times for investment banking peers. Part of the gap reflects market sentiment on a cyclical sector, part deserves monitoring (margins under pressure).

Is P/FCF reliable for judging a bank?

Less than for a regular company. A bank's balance sheet has a different capital structure, which makes some of my usual calculations less meaningful in absolute terms. I detail this in my dedicated article on bank valuation.

When does Goldman Sachs report next earnings?

July 14, 2026, before market open.

Should I buy Goldman Sachs now?

This isn't personalized investment advice. Quality is real and the relative price is low, but margin compression is worth watching before deciding. Do your own research.

GS: see the full analysis on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).