Ally Financial Stock Analysis | ALLY Stock | $ALLY Stock Analysis | Best Bank Stock to Buy Now?

hello and welcome back to global value in today's 
video we'll be performing a fundamental stock   analysis of ally financial inc ticker symbol 
ally a-l-l-y at the time of recording this video   ally is trading for just over 42 dollars per 
share year-to-date the stock is down about 11   going back the over the past year ally 
is down about 24 over the past five years   ally has done very well returning about 18 
compounded annually and since they were public   allies returned about six percent compounded 
annually we can see that their stock price   was hit very hard by the march of 2020 crash and 
then went on a significant tear for over a year   since about june of last year their stock 
price has trended down slightly so we can   see that ally is trading closer to its 52-week 
low than it is to its 52-week high allies about   a 14 billion dollar market cap give or take 
roughly 13.7 at the time of recording this video   so what does ally actually do ally financial inc 
is a diversified financial services firm that   services automotive dealers and their retail 
customers the company operates as a financial   holding company and a bank holding company 
its banking subsidiary ally bank caters to the   direct market banking through internet mobile and 
mail the company reports four business segments   including automotive financing operations 
insurance operations mortgage finance operations   and corporate finance operations the company 
was formerly known as gmac inc and was the   lending arm of general motors and changed its 
name to ally financial in may of 2010 as part   of a restructuring post the great recession ally 
financial inc was founded in 1919 and is based in   detroit michigan so we'll be performing a modified 
eight pillar analysis of ally the eight pillar   analysis is popularized by everything money but 
it doesn't quite fit for financials and banking   stocks it's modified slightly to better reflect 
what some of the averages are for the industry   and just some factors that we're going to want to 
look at full disclaimer that i'm not an expert on   financial stocks and that just by the nature 
of things financial stocks are going to be more   difficult to analyze uh through certain aspects 
i want to be transparent that this video is about   learning in public and improving as investors 
by taking a look at these types of financial   companies together so as we go through our 
analysis together if you have any feedback about   things to look at or ways to improve while 
we're looking at financial and banking companies   please let me know in the comments down below so 
with that said let's get right into our analysis   starting off with pillar number one we want 
allies average five-year pe to be below   12.5 so currently ally is trading for about a 
five times earnings multiple and over the past   five years they've traded at just around 10 times 
earnings so pillar number one is gonna be a check   pillar number two we want allies average five-year 
return on equity to be above nine percent while   their return on equity has fluctuated a bit ally 
does a pretty good job here they've done very well   over the past year and averaged out their return 
on equity is exactly 11.11 so pillar number two   is gonna be our second check pillar number three 
we're looking for five-year revenue growth they've   grown revenues from 5.9 billion dollars in 2017 to 
about 8.7 billion in 2021.

So far so good we have   three checks in a row next up we're looking for 
five-year net income growth so in 2017 they had   about 930 billion dollars of net income and they 
tripled this to about 3 billion dollars in 2021 so   that's another check on pillar number four because 
banking stocks are using their deposit base   we're actually going to value the company based 
on its net income averaged out throughout this   time period they earn about 1.6 billion dollars 
a year so we'll use that number in place of their   free cash flow for pillar seven and eight coming 
up later on pillar number five we're looking for   decreasing shares outstanding when you purchase 
a stock what you're really buying is an ownership   percentage in a business so you don't want a 
business that dilutes shareholders and ultimately   lowers that ownership percentage without your 
say we can see that over this time period   ally has bought back a good amount of their shares 
they've nearly repurchased 20 of shares since 2017   and they're down from 455 million to 
about 365 million as of the end of 2021   so ally has been repurchasing shares throughout 
this time period and for existing shareholders   they've been increasing their ownership percentage 
in the business which ultimately means that you're   entitled to a greater percentage of allies 
future profits so that's a great sign here   we're doing well so far we're five for five 
through the first five pillars pillar number   six we're looking for five year free cash flow 
growth so this one's gonna be our first x they   had positive free cash flow in 2017 and they had 
negative one billion dollars of free cash flow   in 2021 so this is a result of them spending 
more on capital expenditures for the business   so they had positive earnings so what this means 
is that the business hasn't lost a billion dollars   rather that billion dollars has been invested into 
the business as capex going forward while having   negative free cash flow for most other businesses 
would be a pretty bad sign negative free cash   flow is potentially a sign of a well-performing 
bank meaning that they're boosting their lending   averaged out over these five years ally consumes 
about a quarter billion dollars of free cash flow   each year so again pillar number six is our first 
x for pillar number seven we want allies net debt   which is their long and short term liabilities 
minus their cash and short-term cash equivalents   to be below their average five-year earnings 
multiplied by five so ally as of the end of last   year had about 12 billion dollars of net debt 
multiplying their average five-year earnings   of 1.6 billion dollars times five brings us to 
about eight billion dollars so pillar number seven   is also gonna be an x finally the big pillar of 
them all pillar number eight we want allies market   cap to be below their five-year average net income 
multiplied by 10.

So 10 is half of our usual 20   that we use for pillar number eight however 10 is 
just a starting point it's more apt because it's   in line with the averages for financial companies 
historically so ally has nearly a 14 billion   dollar market cap multiplying their average 
five-year earnings of 1.6 billion dollars times 10   brings us to 16 billion dollars so that gives us 
about two billion dollars for margin of safety   for pillar number eight and that's going to 
be a check on pillar number eight based off   of their earnings profile it looks like ally 
is slightly undervalued at this current price   this type of analysis is just a this doesn't 
necessarily mean that just because it checked the   box on pillar number eight that you want to go out 
and buy ally right away this type of analysis is   just a starting point to get a holistic overview 
of the business based on its financials it's not   any sort of investment or financial recommendation 
so before you decide one way or the other on ally   i recommend digging into the company's filings 
and learning more about the business in depth   you really don't want to invest in a business 
unless you truly know it inside and out and can   understand the essence of the business which is 
just something that this type of analysis can't   provide this is just a starting point the last 
thing i want to look at is allies dividend profile   ally has been steadily increasing their dividends 
per share over the past five years they've also   managed to keep a relatively low payout ratio 
for their dividend so based on these past years   it looks like they have a pretty healthy 
and secure dividend going on into the future   whether or not these annual dividend increases are 
going to continue i can't say based off of this   but it does look like their dividend profile 
is in good shape so in summary ally checks the   box on six out of eight pillars the business 
earns good returns on equity it's trading for   reasonable multiples and it's experienced growth 
over the past five years they're also buying back   a good amount of shares and increasing the amount 
of capital that they're returning to shareholders   so again this sort of modified analysis is not 
going to be perfect for financial companies if   anything stood out to you about how we can improve 
this type of financial analysis going forward   i would really appreciate if you left me a message 
in the comments ultimately i want to be performing   the best and most clear fundamental business 
analysis that i can covering the full gambit of   businesses from every industry any way that i can 
improve on that is greatly appreciated well guys   that's it for today's stock analysis of ally 
financial inc ticker symbol ally a-l-l-y if you   enjoyed the video please be sure to like the 
video subscribe to the channel for more stock   analysis videos and comment down below what 
business you want me to take a look at next   ally was a subscriber request so thanks for 
learning about ally with me and have a great day

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