Is Now the Right Moment for Ally Financial After Recent Share Price Decline?

If you’re looking at Ally Financial stock and wondering whether now is the time to act, you’re not alone. After rising over 18.7% in the past year and boasting an impressive 61.1% gain over the last three years, Ally has caught more than a few eyes. However, recent weeks have reminded investors that the ride is not always smooth. With a dip of 9.2% in the last week and a 2.2% slide over the past month, some might be wondering what is behind these short-term moves and whether they signal a chance or a warning.

Market watchers are quick to point out that broader economic shifts and investor sentiment around financials, especially as interest rates and credit outlooks evolve, can fuel swings like these. For many, these shifts mean it is time to dig into what really matters: the stock’s current valuation.

By traditional valuation measures, Ally Financial only meets the “undervalued” bar on 1 out of 6 checks, giving it a value score of just 1. But there is more to the story than just that number. As you weigh whether Ally is still a smart bet, it is important to unpack how these valuation approaches actually work. At the end, I’ll share an even sharper tool for getting to the real value behind the number.

Ally Financial scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Ally Financial Excess Returns Analysis

The Excess Returns valuation model focuses on how effectively a company generates returns above its cost of equity. In simple terms, it weighs how much profit Ally Financial earns from its invested capital, after accounting for the expected returns that shareholders require given the risks.

For Ally Financial, here are some key underlying numbers:

• Book Value: $39.71 per share
• Stable EPS: $4.70 per share (Source: Weighted future Return on Equity estimates from 10 analysts.)
• Cost of Equity: $5.23 per share
• Excess Return: $-0.53 per share
• Average Return on Equity: 10.55%
• Stable Book Value: $44.54 per share (Source: Weighted future Book Value estimates from 9 analysts.)

According to this model, Ally Financial is currently generating a slight negative excess return, meaning its return on invested capital falls just short of the required cost of equity. Using these projections, the Excess Returns analysis arrives at an intrinsic value indicating the stock is 4.6% overvalued compared to its current market price.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Ally Financial.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Ally Financial's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Ally Financial Price vs Earnings

When a company is consistently profitable, the price-to-earnings (PE) ratio is often the go-to valuation tool for investors. This metric reveals how much the market is willing to pay for every dollar of a company’s earnings, helping to provide a quick sense of whether a stock looks cheap or expensive compared to its peers.

Growth expectations and risk play a big role in what counts as a “normal” or “fair” PE ratio. Companies with stronger growth prospects or lower perceived risks usually command higher PE ratios, while more mature or riskier firms tend to trade at lower multiples.

Looking at Ally Financial, the stock currently trades at a PE ratio of 38.15x. Compared to the Consumer Finance industry average of 10.48x and the peer average of 45.33x, Ally appears priced above the broader market but below its closest peers. Simply Wall St’s “Fair Ratio” for Ally, based on a proprietary analysis that factors in earnings growth, market cap, risk profile, and industry trends, is 24.46x.

The Fair Ratio is particularly useful because it does not just take industry or peer averages at face value. Instead, it weighs important company-specific traits like projected earnings growth and underlying business risks, alongside profitability and market cap, to come up with a bespoke benchmark for valuation.

Compared to this Fair Ratio, Ally’s current PE is notably higher, suggesting the market is pricing in more optimism than fundamentals alone might justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Ally Financial Narrative

Earlier, we mentioned there is an even better way to understand a company’s true value. Let’s introduce you to Narratives. A Narrative is your story behind the numbers, where you connect your perspective on Ally Financial’s business drivers to specific forecasts for future revenue, earnings, and margins. This approach links the company’s story to a detailed financial forecast, ultimately leading to a unique fair value estimate.

Narratives are available on Simply Wall St’s Community page, where millions of investors use them to make investment decisions more confidently. They allow you to easily compare your fair value estimate to the current price and decide if now is the right time to buy or sell. Because Narratives are updated dynamically as new information (like earnings reports or major news) comes in, you can always keep your thesis current.

For example, one investor might believe in a bright digital future for Ally, forecasting high revenue and margin growth and landing at a $59 price target, while another takes a more cautious view of competition and credit risks, setting a $39 target. Narratives make these differences transparent, helping you build, test, and refine your story with real data.

Do you think there's more to the story for Ally Financial? Create your own Narrative to let the Community know!

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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