So far in 2011, the financial group is by far the worst performing sector and has posted a negative return of more than 21%. And with financials making up 13.3% of the S&P 500, they have been a significant lag to overall index returns. Fears over sovereign debt levels and flagging growth in Europe have been a primary concern lately, but could spell an opportunity for brave investors willing to bet that the problems in Europe will be worked out over time.

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Recent Results Recap
Third quarter net revenues fell nearly 60% to $3.6 billion as investment banking revenues fell almost 33%, and investing and lending activities fell into negative territory at $2.5 billion. Net interest income did improve by 20.2% to $1.36 billion, but was more than offset by a decline in the primary activities of underwriting debt and equity security issuance and trading securities on the behalf of institutional clients. Goldman also manages money for clients and saw revenues fall 5.6% to $1.1 billion in this segment. Net earnings were negative at $428 million, or 84 cents per diluted share. Quarter-end book value was just over $131 per share while tangible book value per share stood at just over $120. (To know more about income statements, read Understanding The Income Statement.)

Outlook
Analysts currently project a full year revenue decline of nearly 21% and total revenues of almost $31 billion. They expect earnings of $5.88 per share, which would represent a year-over-year decline of nearly $10 from the $15.22 per share reported last year.

The Bottom Line
As evidenced by the near-term volatility in its operations, investing in The Goldman Sachs Group (NYSE:GS) is not without risk. Additionally, last year 27% of revenue stemmed from the European, Middle Eastern and African regions, with most of that centered around the unstable euro area. Of revenues, 55% came from closer to home in the America's region, with the remaining 18% from the faster-growing and more stable Asian region.

The argument for investing in The Goldman Sachs Group centers around just how cheap the stock has become. At less than $100 per share currently, it trades at a significant discount to tangible book value, with the ratio of market value to book currently at approximately 79%. This is among the lowest levels Goldman has traded at. Regional peers including Jefferies Group (NYSE:JEF), Raymond James Financial (NYSE:RJF) as well as more diversified financial rivals such as JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) are also severely beaten down in the current environment.

Under normal market conditions, Goldman should easily be able to achieve a return on equity (ROE) of closer to 10%, which suggests earnings of around $12 per share. It is doubtful ROE ever returns back to the 27% it stood at right before the credit crisis hit, but a mid-teens level within a few years is quite reasonable, as is a price-to-book ratio well above 1. Overall then, it's feasible to see the stock rally 25% or more, with the potential for brave investors to double their money over a five-year timeframe as profits and book value both recover and grow, as does the multiple that investors place on them. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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