Ally Financial stock has delivered a 63.2% return over the past three years. On current checks the shares still screen as attractively priced, with both the intrinsic value estimate from the Excess Returns model and earnings multiples pointing to an undervalued setup rather than a fully priced story.

• A 63.2% gain over three years puts Ally Financial among the stronger performers in its space. This makes the current pricing signal more interesting for investors who already hold the stock or are watching from the sidelines.
• Record auto loan application volumes and growth in retail auto originations can support the earnings base that underpins valuation, while delinquency trends and credit quality remain a key risk that may affect how much of that value is ultimately realized.
• The broader checks lean cheap, with Ally Financial scoring 5 out of 6 on valuation, which means multiple frameworks currently line up on the undervalued side rather than pointing to a clear premium.

The issue now is whether Ally Financial’s current share price already reflects the recent good news on auto finance and digital banking, or if the gap to the intrinsic value estimate still offers a meaningful margin of safety for investors.

Is Ally Financial Still Cheap on Excess Returns?

The Excess Returns model evaluates how much profit Ally Financial generates compared with the required return on its equity base, then derives an intrinsic value from that difference. For Ally Financial, the model uses a Book Value of $44.38 per share and a Stable EPS of $6.15 per share, based on weighted future Return on Equity estimates from 9 analysts. The implied Cost of Equity is $5.83 per share, which results in an Excess Return of $0.32 per share and an Average Return on Equity of 11.92%. Stable Book Value is set at $51.61 per share, based on future Book Value estimates from 7 analysts.

Using these inputs in the Excess Returns framework gives an estimated intrinsic value of $55.69 per share. Compared with the current share price, this output indicates that Ally Financial screens at about 22.2% undervalued. Because Ally Financial recently reported record loan applications and higher retail auto originations while still facing credit quality and delinquency risks, the current discount indicates that the market is cautious about how much of those projected returns will be sustained.

Overall, the Excess Returns analysis indicates that Ally Financial stock appears undervalued relative to the earnings power implied by its equity base.

Our Excess Returns analysis suggests Ally Financial is undervalued by 22.2%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.

Is Ally Financial a Bargain on Earnings?

P/E is usually the cleanest quick check for Ally Financial because earnings remain a key focus for a consumer finance business. It tells you how much you are paying today for each dollar of current earnings.

Ally Financial trades on a P/E of 9.8x. That is slightly above the Consumer Finance industry average of 8.9x, yet well below the broader peer group average of 22.6x. A tailored fair P/E of 15.4x, which takes into account factors like the company’s margins, size and risk profile, sits well above the current level. This highlights a material gap between where the stock trades and where it might sit if it lined up with those fundamentals.

On this view Ally Financial appears on the cheaper side for its earnings profile, even though the market is assigning it a modest premium to the sector average.

On the P/E multiple, Ally Financial stock appears inexpensive relative to both its fair ratio and wider peers.

The Ally Financial Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the Ally Financial valuation puzzle leaves off and spell out the specific assumptions on growth, margins and earnings that would need to hold for the stock to be worth meaningfully more or less than today’s price. Each one anchors its figure to a clear view on how Ally Financial's growth, profitability and risks could evolve, which you can return to as fresh information emerges.

One of the top community narratives on Ally Financial: 7% undervalued

"Alternative mobility trends and automaker-led finance options threaten Ally's auto lending business, limiting origination growth and weakening its market position..."

Do you think there's more to the story for Ally Financial? Head over to our Community to see what others are saying!

The Bottom Line

Ally Financial screens as undervalued on both the intrinsic value estimate from the Excess Returns model and on earnings multiples, with the different methods broadly pointing in the same direction. For you as an investor, the key question is whether credit quality and delinquency trends remain contained enough for that implied earnings power to show up consistently over time. If that holds, the current discount could prove attractive. If it does not, the present gap between price and intrinsic value may turn out to be the market correctly pricing the risk in Ally Financial stock.

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.