(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The year 2018 already has been bad enough for Goldman Sachs Group Inc. (GS), with the stock falling more than 20% off its highs into a bear market. It may get worse. Technical analysis suggests that the stock will fall 7% lower than its current price of roughly $215.75. Should that happen, the stock would be more than 27% off its 2018 high and at its lowest price since late 2016. (See: Goldman May Decline More Despite Bullish Forecasts.)
Some options traders support that view and bet the stock will fall 6% by the start of the new year. The negative sentiment comes ahead of what is forecast to be a weak third quarter when the company reports results on Tuesday before the bell.
A Drop to $200
The chart shows the stock is trading around technical resistance of $216. Should the stock stay below that resistance level, it may fall to roughly $200.The relative strength index has been trending lower since this past summer, and it too would suggest that momentum is leaving the stock.
The options for expiration on January 18 at the $210-strike price heavily favor the stock falling by a ratio of more than 6 to 1. There are nearly 6,600 open put contracts at that strike price, and a buyer of the puts would need the stock to fall to roughly $201.50 to earn a profit.
Weak Third Quarter Forecast
Earnings are estimated to have increased by 6% for the third quarter, but that number has been lowered by 2% over the past month. Revenue is estimated to have increased by 1% during the quarter, and it has been reduced as well.
GS EPS Estimates for Current Quarter data by YCharts
Goldman's full-year results are expected to be strong, with earnings growing by 25% on 14% revenue growth. However, that growth all but disappears in 2019. Earnings are forecast to rise less than 2% on flat revenue. Analysts currently have an average price target on the stock that's more than 27% higher than its current price. That target may be too optimistic for the stock given its decelerating earnings growth. (See: Goldman Stock Seen Rising 15% on Raised Estimates.)
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.