Ally Financial (NYSE:ALLY), the online-only bank, has reported a significant decline in its stock value, dropping by 58% from its peak in June 2021 and by 4% in 2023. Despite this downturn, the company's performance has attracted investors, including Berkshire Hathaway (NYSE:BRKa), due to its aggressive share buyback strategy and steady dividend payouts.
The bank, which primarily focuses on auto loans, contributing to 45% of lending assets, has seen a record origination of $10.6 billion from 3.7 million applications in Q3 2023 at an average yield of 8.9%. This surge comes despite the customer concentration with substantial input from Stellantis (NYSE:STLA) and GM loans.
However, the uncertain economic environment and rising interest rates pose a challenge. The net charge-off rate rose by 54% compared to Q3 2022, impacting the net interest margin as the deposit base yield increased to over 4% from under 1.6%.
Despite these challenges, Ally's leadership has successfully reduced the share count by 30% between 2017 and 2022 through an aggressive buyback strategy. The company also maintained a steady quarterly dividend payout, resulting in a healthy dividend yield of 5.1%.
This financial strategy and performance have drawn investors like Berkshire Hathaway, despite the bank's stock not rallying in line with the S&P 500's growth this year. As such, some see Ally Financial's current situation as an opportunity for savvy investors to buy at a lower price. The digital bank offers extensive financial services including checking and savings accounts, personal loans, investment accounts, and mortgages.
InvestingPro Insights
In light of the recent developments, InvestingPro provides valuable insights for potential investors. According to InvestingPro data, Ally Financial has a market capitalization of $7.21 billion and a low P/E ratio of 6.53, indicating a potentially undervalued stock. Despite a decline in revenue growth by 10.05% in the last twelve months as of Q3 2023, the company maintained a stable dividend yield of 5.09%.
InvestingPro Tips reveal that management's aggressive share buyback strategy has been a key factor in attracting investors. Furthermore, the company's strong earnings have enabled continuous dividend payments, with the dividend being raised for seven consecutive years. However, investors should be aware of the declining trend in earnings per share and the expectation of a drop in net income this year.
With over 100 additional tips listed in InvestingPro, investors can gain a comprehensive understanding of Ally Financial's performance and potential. This valuable information can help investors make informed decisions about their investments.
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