Ally Financial: A digital bank with long-term potential

Ally Financial $ALLY is the largest fully digital bank in the U.S., targeting millennials and Generation Z. Its strengths lie in its modern digital platform, steady client growth and robust auto lending business. Still, the company's stock faces challenges such as concerns over non-performing loans and uncertainty around smaller banks.

Digital innovation and customer growth

Since its inception in 2010, $ALLY has built a significant presence in the digital banking market:

- Strong client growth:

- In Q3 2024, Ally attracted 57,000 new customers, bringing the total number to 3.3 million.

- 74% of new customers are millennials and Gen Z, underscoring the platform's popularity among tech-savvy users.

- High customer retention:

- Customer retention rate is 95 %, indicating user satisfaction.

Strong business in car rental.

Car loans form a key part of Ally's business:

- In Q3 2024, Ally processed 3.6 million applications loan applications, resulting in the origination of 3.6 million 9.5 billion dollars.

- Improving the quality of applicants:

- The average credit score of approved applicants increased to 710 pointsreflecting Ally's more conservative approach.

- The approval rate dropped from 30% to 28 %helping to reduce the risk of default.

Attractive valuations and dividends

From an investor perspective, Ally is attractive due to:

- Lowly valued shares:

- The stock trades at a price-to-book ratio of around 0,9 and a forward-looking P/E ratio 6.

- Stable dividend:

- The dividend yield is 3,4 %, which is above the sector average.

These factors make $ALLY an attractive option for investors seeking value and stable income.

Challenges facing Ally

1. Non-performing loans:

- Increasing default rates can affect the company's financial performance.

2. Nervousness around smaller banks:

- Recent banking crises have increased investor concerns about smaller financial institutions.

3. Macroeconomic risks:

- High interest rates and recession risk may affect loan demand and customers' ability to repay.

Long-term prospects

$ALLY has several factors that support its future growth:

- Innovation in digital banking:

- Continued focus on technology ensures competitiveness with traditional banks.

- Confidence of large investors:

- Berkshire Hathaway, led by Warren Buffett, holds Ally stock, signaling confidence in its stability and growth.

- Strong younger customer base:

- Focus on millennials and Generation Z ensures future expansion of client base.

Conclusion.

$ALLY offers an interesting combination of low valuation, attractive dividend yield and long-term growth potential. Still, investors should consider the risks associated with non-performing loans and overall market jitters.

For investors looking for stability and long-term growth, Ally may be a good choice, especially with its digital platform and innovative approach to banking. However, monitoring Ally's ability to maintain the quality of its loan portfolio and manage macroeconomic challenges is key to a successful investment.