Exploring the Possibility of Purchasing Ally Financial at Under $40 Value?
Ally Financial, represented by the ticker symbol ALLY, is experiencing a strong beginning to 2025 with a 8% increase in share price since the start of the year, as of February 19. However, the stock is still trading approximately 15% below its 52-week high and more than 30% below its 2021 all-time peak.
To shed light on Ally's current situation, it's crucial to consider both the challenges the company has faced and its strengths. Despite some pressure in recent years, Ally remains an impressive business with significant potential.
A dominating force in the auto lending industry
For those unfamiliar with Ally, its primary focus is auto lending. Spun off from General Motors in the post-financial crisis era, Ally now operates as an independent, online-centric bank, boasting $143 billion in retail deposits, an investment platform, and more. As the largest indirect auto lender in the United States, Ally originated $39.2 billion in auto loans in 2024, earning an average yield of 10.4%.
In addition to auto loans, Ally also has a thriving insurance business, writing nearly $1.5 billion in auto insurance premiums in 2024 alone. With a 3.3% net interest margin and more than $1 billion in core pre-tax income, Ally has proven itself as a highly profitable organization.
Seeking to optimize its operations, Ally recently decided to exit several non-core business lines and focus on its primary franchises, such as dealer financial services, corporate finance, and its digital retail bank. These strategic decisions helped the company achieve over $60 million in annual savings from efficiency improvements.
Balancing risk and opportunity
Ally's profitability is not without its challenges. The company's net charge-off rate – the portion of loans not collected – has seen a significant increase for two consecutive quarters. While this rate is not yet alarming, it's essential to monitor the development closely.
Fortunately, Ally's more recent loans have featured higher credit quality, as evidenced by the average FICO score of its borrowers increasing by 24 points between 2022 and 2024. Combined with decreasing loan payment percentages, these developments should help mitigate potential losses moving forward.
Potential tailwinds for Ally
Current market conditions appear particularly advantageous for Ally, with a range of tailwinds potentially benefiting the company and its peers in the banking sector. Among these factors:
- Interest Rate Cuts: Lower interest rates should help lower deposit costs while boosting loan yields, leading to a stronger net interest margin and increased earnings growth for Ally.
- Regulatory Changes: The new presidential administration has expressed a proclivity for relaxing banking regulations and lowering corporate tax rates, offering potential beneficial impacts on Ally's earnings.
Ally poised for success
As the auto finance industry evolves, Ally's position as an experienced player with a focus on digital transformation, electric vehicles, and subscription services positions it well to capitalize on emerging opportunities. By staying agile and adapting to industry developments and market trends, Ally can maintain its competitive edge and continue driving success in the years to come.
- Ally Financial's focus on investing in digital solutions, such as electric vehicles and subscription services, could potentially help it outperform its peers in the auto finance industry by 2025.
- To maximize its profits, Ally is strategically diversifying its investments in finance, which includes aggressive funding of stocks to generate higher returns by 2025.
- Balancing its income from auto loans and insurance, Ally's financial allies are convinced that the company's future profits will remain stable, predicting a strong return on investment over the next five years.
- With the positive factors influencing the banking sector, such as interest rate cuts and regulatory changes, Ally Financial's allies are hopeful that these beneficial impacts on the company's earnings will contribute positively to its overall finance and stock performance by 2025.
