Buy this undervalued stock before everyone else
Finding undervalued stocks before Wall Street gives them the credit they deserve is one way to maximize your returns on your investment. Sooner or later the secret will come out, and you will see the payoffs.
Allied financial (NYSE: ALLY) is a financial action with multiple sources of income that trades at a serious discount. Here’s why it’s undervalued and why it has high growth potential.
A wide range of products with many opportunities
Ally is known for its auto loan business, but it operates several other businesses that complement a suite of financial technology solutions.
Its largest business is auto loan, which has over 4 million auto loan customers and 2.5 million auto insurance customers. Ally is the largest auto lender in the United States, with $ 105 billion in loan commitments at the end of the first quarter. The company generated more than $ 10 billion in auto loans in the first quarter, the highest level in more than five years. This was a strong performance during a global car shortage brought on by chip shortages. The lowest car inventory in decades has pushed both new and used car sales to high levels, and Ally is getting a piece of that business.
Its other major segment is consumer digital banking, which is also growing rapidly. Personal deposits rose 21% in the first quarter to nearly $ 130 billion, making it a mid-sized bank. The clientele of consumer banking is up 14% to 2.3 billion. Ally announced last week that it would be eliminating overdraft fees completely for all of its accounts, and it is the first major bank to do so. This action should not significantly mark its income statement, but it should attract new customers for its current 9 million.
Ally has other smaller divisions that make up the rest of its operations. Home loans are becoming a bigger business for Ally, and home loan origination rose 145% in the first quarter to $ 1.8 billion. Current customers represent 45% of loan origination, which underlines the company’s ability to build a strong organic growth model. Business loans hit an all-time high, also at $ 1.8 billion.
Brokerage is a smaller player, with nearly half a million customers and $ 14.5 billion in assets. But as it rolls out a more competitive consumer banking model and develops a fintech base for its clients, it can acquire more of its customer base for its brokerage services.
In other words, Ally is growing well, and he has other ways to support it.
Why is he undervalued?
Among many traditional valuation metrics, Ally’s stock trades at a low level. Stocks are trading at just over 9 times one-year earnings over time, which is low even for a bank. Tangible book value (TBV) stood at just over $ 36 per share on an adjusted basis in the first quarter, which means the bank’s price-to-TBV ratio is attractive at 1.4.
Like other banks, Ally suffered at the start of the pandemic, when she had to move more money to cover potential losses, resulting in a net loss for the first quarter of 2020. But net profit increased over the course of each successive quarter, up to $ 800 million in the first quarter of 2021, compared to $ 1.9 billion in revenue.
As a small banking player, the market may not be giving Ally the attention (or payoffs) it deserves. Ally stock has gained 132% over the past year at Wednesday’s close and is trading around all-time highs, but still shows a low overall valuation, with many more benefits to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.