Since August 2025, Ally Financial has been in a holding pattern, posting a small return of 3.7% while floating around $42.22.
Is now the time to buy Ally Financial, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Ally Financial Will Underperform?
We're cautious about Ally Financial. Here are three reasons there are better opportunities than ALLY and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
Over the last five years, Ally Financial grew its revenue at a mediocre 7.3% compounded annual growth rate. This fell short of our benchmark for the financials sector.
2. Steady Increase in TBVPS Highlights Solid Asset Growth
We consider tangible book value per share (TBVPS) an important metric for financial firms. TBVPS represents the real, liquid net worth per share of a company, excluding intangible assets that have debatable value upon liquidation.
Although Ally Financial’s TBVPS increased by a meager 2.3% annually over the last five years, the good news is that its growth has recently accelerated as TBVPS grew at a solid 10.2% annual clip over the past two years (from $35.17 to $42.70 per share).
Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.
Over the last two years, Ally Financial has averaged a Tier 1 capital ratio of 9.8%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.
Final Judgment
We see the value of companies driving economic growth, but in the case of Ally Financial, we’re out. That said, the stock currently trades at 8× forward P/E (or $42.22 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of Ally Financial
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
