Ally Financial Inc. (NYSE: ALLY)
Ally Financial is a bank holding company with its headquarters in Detroit, Michigan. It provides various digital financial products and services to customers, both corporate and commercial, residing primarily in Canada and the USA. It has 4 main divisions: Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations. Having recently made its way to the Berkshire Hathaway portfolio, mentions of Ally Financial have increased by a huge margin of 150% over the last day, encouraging investors to look into what makes this stock such a good investment.
Ally Financial Inc. currently trades at $42.88 per share.
Is Ally Financial a Good Investment - Positives
There are lots of reasons you should add Ally Financial to your portfolio, here are some of the major ones.
Ally returns a good amount of capital to shareholders, it recently bought back 157 million shares and is planning to repurchase $2 billion worth of stock this year, which equates to about 14% of its total market cap.
In addition to this, Ally paid out an increased dividend of $0.30 per share in the first quarter, and it also announced it will maintain the same payout in the second quarter. That dividend is 58% more than the $0.19 per share it paid in Q1 of 2021.
The company has a strong set of financials, it had its best first quarter in 11 years with loan originations up 14% year over year to $11.6 billion with yields over 7%. Even with an economic slowdown, Ally hit a record-high $18.4 billion in Q1 2022 in loans held for each quarter and seems to be in a good state to power through a potential downturn.
Ally boats an efficiency ratio of 45.6% and has a high operating margin of 44% thanks to lower overheads from not having physical branches. These factors allow it to return a larger percentage of profit to shareholders once again.
Lastly, Ally is trading below book value with a price-to-book ratio of 0.95 and has seen a high return of tangible common equity (ROTCE) of around 24%, making it seem considerably undervalued.
Is Ally Financial a Good Investment - Negatives
Although there are lots of reasons Ally might be a good investment, it is just as important to see why it might not be as well. Some of the reasons it might not be the best time to invest in Ally right now are as follows.
According to Cox Automotive’s latest reports, it seems that there might be a slowdown in auto sales of around 20% in the year 2022. Auto lending is one of Ally Financial’s major revenue sources and this could be temporary bad news for the company.
There is the looming threat of a recession in the near future, which means that there is a possibility of more people defaulting on their auto loan payments than Ally’s management originally predicted.
Overall, Ally Financial is a leader in its industry and a combination of having a cheap valuation, solid financials and relatively high returns to shareholders make it seem like a good choice of investment. However, with the onset of an economic recession, Ally might have some difficulties maintaining its current growth rate. If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
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