FOR most of last week, Financial Firms were flying high on the heels of JPMorgan Chase & Co’s (NYSE: JPM) Wall Street-topping results. By Friday, however, that picture took a turn for the worse. US regulators, specifically the Securities and Exchange Commission (SEC), dropped a bomb, advising that it planned to file suit against Goldman Sachs Group, Inc (NYSE: GS).

The regulatory body charged GS with withholding information from investors during the financial crisis. Particularly, the SEC alleged that GS allowed hedge fund, Paulson & Co, which intended to bet against a collateralised debt obligation (CDO) marketed by Goldman, to help choose the underlying assets in the instrument. As we all saw, the market reacted sharply and the result was a 125.91-point decline in the Dow Jones Industrial Average and a 12.79 per cent (US$23.57) dive in GS shares to close at US$160.70 on Friday, April 16, 2010.

Amid the legal dispute, there is undoubtedly some risk involved with the stock at this time, as Goldman’s reputation will at least take a short-term hit. However, on Monday it was reported that the SEC vote on whether or not to sue GS was split 3-2, an indication that the regulators were not entirely confident that the case will end in their favour. GS, which has denied the claims, saying that they are “completely unfounded in law and fact” will no doubt defend itself vigorously. Moreover, given GS’ proven track record, this could very well be just a bump in the road for the investment bank and investors should consider viewing the reduced stock price as an opportunity to buy GS.

While investors fled, analysts were not so quick to turn their backs on the stock. The saga around Goldman and the SEC is still unfolding, but to date, the consensus among analysts seems to be that the market reaction to the lawsuit is exaggerated. On Monday, FBR Capital Markets removed the stock from its “Top Picks” list as a result of “negative overhang created by the SEC actions announced on April 16, 2010”. Notably however, the firm kept its “Outperform” rating on the shares and maintained its US$190.00 price target. Analysts at Wells Fargo & Co also held their “Outperform” rating, with a valuation range of between US$205.00 and US$215.00. Additionally, Fitch Ratings maintained its stance on GS, saying it does not expect that the lawsuit will have a material impact on GS’ financial profile or rating. The ratings agency anticipates that GS will be able to absorb any potential monetary fine/settlement arising from the case.

At the end of the day, the Company’s fundamentals and track record remain intact. Of note, GS was one of the first of the major US banks to repay its loan (in GS’ case worth US$10 billion) from the US Treasury’s Troubled Asset Relief Programme (TARP) and compared with many of its peers, it emerged from the financial crisis with relatively little bruising. The stock has outperformed its rivals over the last five years, adding over 50 per cent to its price versus declines for most counterparts. JP Morgan Chase & Co is the only other major Bank to gain over the period, and even so, GS was not to be outdone as JPM added 34 per cent.

Another factor which should not be overlooked is that GS, the most profitable investment bank in US history, has consistently wowed Wall Street with its earnings — and its first -quarter results released yesterday were no exception. Net income for the period ended March 31, 2010 almost doubled to US$3.46 billion (US$5.59 per share) from US$1.81 billion (US$3.39 a share) in the prior year. The results topped analysts’ forecasted earnings of US$4.14 a share. GS preserved its top position in the industry in fixed-income trading, which contributed the lion’s share of Total Net Revenues (57.82 per cent). GS reeled in a record US$7.39 billion from its Fixed-Income, Currencies and Commodities segment, compared with US$5.52 billion and US$5.46 billion respectively for BAC and JPM.

Based on GS’ closing price of US$159.98 yesterday, and Earnings per Share (ttm) of US$23.97 the stock is currently trading at 6.67 times earnings. Compared to Thursday’s Price to Earnings (P/E) ratio of 8.33 times the stock is attractively priced. As Goldman continues to be a flagship brand among investment banks globally, showing its vigour through the financial crisis, investors should consider taking advantage of this opportunity while is exists.

Shari DaCosta is a Research Analyst at Stocks & Securities Ltd. You can contact her at sdacosta@sslinvest.com.