There's no question the financial services industry is home to some of the world's most dominant businesses. One such company -- Goldman Sachs (GS 2.86%) -- certainly stands out, especially in the area of capital markets and deal-making.

This Wall Street giant has been on a tear recently: Its shares have soared by 185% in the last five years and 59% in the past 12 months. Those are much better gains than the S&P 500, which is something you might not expect from a bank stock.

But as of Feb. 26, shares were 7% below their peak from mid-February. Should you buy Goldman Sachs while it's below $650?

Strong momentum

Last year, the bank made a fantastic showing. Total revenue increased 16% to $53.5 billion, after falling by 2% in 2023. Its strength was notable in investment banking and investment management, where it reported double-digit percentage gains. "In investment banking, we once again ended the year as the No. 1 M&A [mergers and acquisitions] advisor," CEO David Solomon said on the fourth-quarter earnings call.

Net interest income surged by 27%, helped by the higher interest rate environment. With operating expenses declining by 2%, Goldman Sachs' net income jumped 68% in 2024.

Looking to 2025 and beyond, management is optimistic about the company's prospects. "While no one has a crystal ball, there are a number of catalysts that we believe will continue to drive activity," Solomon said.

A favorable macroeconomic backdrop can spur deal-making activity. And for Goldman Sachs, this means there's greater potential to generate lucrative fees from advising companies on events like initial public offerings and mergers & acquisitions, while also increasing its assets under management.

Goldman Sachs could benefit from the Trump administration's expected moves to reduce regulations in the financial sector and elsewhere. This could give corporate executives more willingness to go out and raise capital, enter the public markets, or conduct major transactions.

Goldman Sachs' leadership team sees big opportunities ahead in private credit and private equity. To capitalize on them, the bank launched a Capital Solutions Group to structure deals and better serve clients looking to invest in these alternative opportunities. The takeaway is that Goldman Sachs is not only in an advantageous position to spot trends within the broader financial landscape, but it's also able to create new business lines to monetize those insights. That's a key strength.

All of this could drive more demand for Goldman Sachs' services. According to analysts' consensus estimates, the financial services powerhouse is projected to grow its earnings per share at a compound annual rate of 12% over the next three years. That tops its trailing 10-year average of 9%.

High expectations

Goldman Sachs' trailing five-year stock returns are unbelievable. Tripling your capital in that period is an outcome that any investor would love to achieve. But I'm confident the stock won't deliver a similar performance over the next five years.

As of this writing (Feb. 26), the stock trades at a price-to-earnings ratio of 15.3. Whether you look back three years, five years, or 10 years, that valuation is historically expensive. That's not necessarily a surprise in the wake of the stock's remarkable run.

Mature financial services companies can be worthwhile investments, but buying those stocks only makes sense when the starting valuation is compelling. The thesis is enhanced if the company's financial performance appears to be in the early innings of a period of major improvement.

Goldman Sachs doesn't fit that description. The market has baked high expectations about the company's near-term prospects into the share price. And the business is coming off a banner year in 2024.

Although the stock is trading well off its peak price, investors shouldn't buy it right now. The valuation still looks stretched, making it harder for new buyers to achieve adequate returns.