Ally Financial (ALLY)

Digital banking company Ally Financial (NYSE:ALLY) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 3% year on year to $2.2 billion. Its non-GAAP profit of $1.15 per share was 14.1% above analysts’ consensus estimates.

Company Overview

Born from the former GMAC (General Motors Acceptance Corporation) and rebranded in 2010, Ally Financial (NYSE:ALLY) operates a digital-first bank offering auto financing, insurance, mortgage lending, and investment services to consumers and commercial clients.

Auto loan providers finance vehicle purchases for consumers and businesses. They benefit from steady vehicle demand, higher average vehicle prices requiring financing, and opportunities in used car financing. Headwinds include economic cycle sensitivity affecting repayment ability, competition from dealership financing programs, and potential disruption from vehicle subscription services reducing traditional ownership models.

Ally Financial competes with traditional banks like JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC), as well as other digital-first financial institutions such as Capital One (NYSE:COF) and Discover Financial (NYSE:DFS). In auto lending specifically, Ally faces competition from captive finance companies owned by automakers, credit unions, and specialized auto lenders like Santander Consumer USA.

A company’s long-term sales performance can indicate its overall 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 tepid 4.5% compounded annual growth rate. This was below our standard for the financials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Ally Financial’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3% annually. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Ally Financial reported modest year-on-year revenue growth of 3% but beat Wall Street’s estimates by 4.1%.

Net interest margin (NIM) represents how much a financial institution earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.

Ally Financial’s net interest margin has decreased by 11.7 basis points (100 basis points = 1 percentage point) over the last four years but stabilized on a two-year basis. Still, both results were worse than the broader financials industry. The firm’s NIM for the trailing 12 months was 3.3%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Auto Loan companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

The pre-tax profit margin includes interest because it's central to how financial institutions generate revenue and manage costs. Tax considerations are excluded since they represent government policy rather than operational performance, giving investors a clearer view of business fundamentals.

Over the last four years, Ally Financial’s pre-tax profit margin has risen by 37.9 percentage points, going from 47.7% to 9.8%. It has also declined by 7.6 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Ally Financial’s pre-tax profit margin came in at 23.3% this quarter. This result was 12.4 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Ally Financial’s EPS grew at an unimpressive 8.1% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its pre-tax profit margin didn’t improve.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Ally Financial, its two-year annual EPS declines of 2.6% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Ally Financial reported adjusted EPS of $1.15, up from $0.95 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Ally Financial’s full-year EPS of $3.50 to grow 40.4%.

Financial firms are valued based on their balance sheet strength and ability to compound book value across diverse business lines.

This is why we consider tangible book value per share (TBVPS) an important metric for the sector. TBVPS represents the real net worth per share across all business segments, providing a clear measure of shareholder equity regardless of the complexity of operations. Traditional metrics like EPS are helpful but face distortion from the complexity of diversified operations, M&A activity, and various accounting rules that can obscure true performance across multiple business lines.

Ally Financial’s TBVPS grew at a weak 1.3% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 11% annually over the last two years from $31.83 to $39.19 per share.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Ally Financial has averaged an ROE of 10.5%, respectable for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired.

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 9.6%, 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.

It was good to see Ally Financial beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its efficiency ratio missed. Zooming out, we think this was a solid print. The stock traded up 3.5% to $39.79 immediately after reporting.

Updated: December 4, 2025 at 11:25 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Ally Financial.

We cheer for all companies supporting the economy, but in the case of Ally Financial, we’ll be cheering from the sidelines. First off, its revenue growth was uninspiring over the last five years. And while its expanding net interest margin shows its loan book is becoming more profitable, the downside is its declining pre-tax profit margin shows the business has become less efficient. On top of that, its TBVPS growth was weak over the last five years.

Ally Financial’s P/E ratio based on the next 12 months is 8.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $48.06 on the company (compared to the current share price of $42.42).