Ally Financial (ALLY) Valuation Check As Earnings Rebound And Share Buybacks Restart
Ally Financial (ALLY) is back in focus after its latest results showed year-over-year net income of US$300 million and a resumed US$2b share buyback, even as credit costs and margin pressures keep investors cautious.
See our latest analysis for Ally Financial.
The latest earnings and buyback news comes after a mixed stretch for the stock, with a 12.1% 90 day share price return but an 8.0% year to date share price decline. The 3 year total shareholder return of 55.5% suggests longer term holders have still seen solid gains as sentiment has swung with changing views on credit risk and funding costs.
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With shares still down year to date despite higher net income, a 3 year total return above 50%, and the stock trading below analyst targets and some intrinsic estimates, is Ally a mispriced opportunity, or is the market already baking in future growth?
Most Popular Narrative: 15.8% Undervalued
Ally Financial's most followed valuation story pegs fair value at $50.00, comfortably above the last close of $42.10, which naturally raises questions about what is driving that gap.
Ally Financial (ALLY) has recently made significant strategic moves, including cutting part of its workforce and exiting the mortgage business. While such decisions often raise concerns in the short term, they could set the stage for long-term growth and improved profitability. Exiting the mortgage business allows Ally to refocus resources on its core strengths, such as auto lending, digital banking, and wealth management. The workforce reduction, while difficult, is a cost-cutting measure that aligns with these priorities. Additionally, Ally’s focus on streamlining operations and improving efficiency could enhance its financial metrics, which some investors may view positively. With these strategic adjustments, Ally appears positioned for growth, and its stock may experience upward momentum if the market responds favorably to these efforts.
Curious what sits behind that $50.00 number according to UnbiasedTrader? The narrative refers to faster profit growth, healthier margins, and a richer future earnings multiple. Want to see how those pieces fit together into that fair value call?
Result: Fair Value of $50.00 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, this hinges on credit trends and funding costs, where any sustained pressure on charge offs or deposit pricing could quickly challenge the 15.8% undervaluation story.
Find out about the key risks to this Ally Financial narrative.
Another Angle on Value
There is a twist when you look at Ally through its P/E. The stock trades on 17.5x earnings, more than double the US Consumer Finance average of 8.2x, yet below the peer average of 45.5x and close to a fair ratio of 18.9x. Does that mix point to upside or more valuation risk than the 15.8% undervalued story suggests?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
Does the mix of concerns and optimism here match your own take, or does it feel off, given the latest numbers and valuation signals? If you want to move quickly and build your own view from the ground up, it is worth weighing the balance of 5 key rewards and 1 important warning sign before you decide what this story means for you.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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