Why Ally Financial (ALLY) is a High-Conviction Buy for Long-Term Growth in 2025

In the ever-evolving financial services landscape of 2025, Ally Financial (ALLY) stands out as a rare combination of disciplined execution, strategic clarity, and undervaluation. With a market capitalization of $11.86 billion and a CET1 capital ratio of 9.9%, Ally is not just surviving—it's thriving in a macroeconomic environment marked by uncertainty. This article makes the case for why investors should consider Ally a high-conviction buy, anchored by its core franchise strengths, operational improvements, and a compelling valuation thesis.

Strategic Business Focus: Auto Finance and Digital Banking as Growth Engines

Ally's strategic focus on two high-margin, high-growth segments—auto finance and digital banking—positions it to capitalize on secular trends in consumer finance. In Q2 2025, the company reported $11 billion in consumer auto originations, driven by 3.9 million applications—the highest quarterly volume in its history. This growth is underpinned by a disciplined approach to credit risk, with 42% of originations in the highest credit quality tier (S Tier) and retail auto net charge-off rates improving to 1.75%. The shift toward high-yielding retail auto and corporate finance loans, coupled with the offloading of low-yielding mortgages, has bolstered Ally's net interest margin (NIM) to 3.45%, up 10 basis points quarter-over-quarter.

Meanwhile, Ally's Digital Bank segment continues to outperform, with 3.4 million customers—marking 65 consecutive quarters of net customer growth. The segment's $143 billion in deposit balances provide a stable, low-cost funding source, while its customer-centric model (no hidden fees, nationwide ATM rebates, and a 24/7 live customer care team) drives loyalty in a competitive market. Ally's digital platform also benefits from a Net Promoter Score (NPS) well above industry averages, reinforcing its ability to retain customers even in a potential rate-cutting cycle.

Strong Earnings Execution: Margin Resilience and Cost Discipline

Ally's Q2 2025 earnings report demonstrated exceptional execution, with adjusted EPS of $0.99, exceeding the Zacks Consensus Estimate by 26.92%. Revenue of $2.08 billion grew 4.1% year-over-year, driven by a 10-basis-point expansion in NIM and disciplined cost management. The efficiency ratio plummeted from 106.0% in Q1 2025 to 60.6%, reflecting aggressive automation in digital banking and a focus on high-return segments. This cost-to-income ratio now sits in an optimal range for a financial institution, balancing profitability with reinvestment flexibility.

The company's capital management is equally compelling. With a CET1 ratio of 9.9% and $66 billion in liquidity, Ally has the flexibility to deploy capital through share repurchases, dividends, or strategic investments. Management has signaled intent to explore capital return opportunities, supported by a core ROTCE of 13.6% (excluding AOCI) and a dividend yield of 3.0%. These metrics highlight Ally's ability to generate returns for shareholders while maintaining a fortress balance sheet.

Undervaluation in a Transforming Financial Services Landscape

Despite its strong fundamentals, Ally remains undervalued relative to its peers and historical averages. While the stock trades at a P/E ratio of 69.96—significantly above its 9-year average of 11.29—this premium is justified by its growth prospects. Analysts have assigned a fair value of $44.99, implying the stock is undervalued by 11.4%. Additionally, Ally's price-to-book (P/B) ratio of 1.03 suggests it is trading close to its intrinsic value, with a book value per share of $39.71.

The broader financial services industry is undergoing a digital transformation, with a focus on AI-driven personalization, fintech partnerships, and embedded finance. Ally's first-mover advantage in digital banking and its scalable auto finance franchise position it to outperform in this environment. For example, its digital bank's $143 billion in FDIC-insured deposits and its 9.82% origination yields in auto lending provide a durable competitive edge.

Long-Term Growth Catalysts: Margin Expansion, Capital Deployment, and Strategic Flexibility

Looking ahead, Ally's long-term growth hinges on three key drivers:
1. Margin Expansion: Management expects NIM to stabilize in the 3.4%-3.5% range for 2025, with the 4% long-term target now adjusted to the “high 3s” due to the credit card divestiture. Strategic asset reallocation and deposit repricing will further support margin resilience.
2. Capital Deployment: With $4 billion in excess capital and a CET1 ratio of 9.9%, Ally can pursue accretive share repurchases, dividend growth, or strategic investments in its core franchises.
3. Strategic Flexibility: Ally's low-cost deposit base and high-yielding auto loans position it to benefit from a potential rate-cutting cycle, where declining borrowing costs could drive NIM expansion.

Conclusion: A High-Conviction Buy for Sustained Returns

Ally Financial's disciplined capital management, core franchise strength, and operational improvements make it a compelling long-term investment. While short-term macroeconomic risks persist, Ally's focus on margin resilience, cost discipline, and strategic growth positions it to deliver sustained returns. At a current price near $39.50 and with a fair value of $44.99, the stock offers a 11.5% upside potential—making it an attractive buy for investors seeking a blend of defensive resilience and offensive growth in the financial services sector.

For those willing to think decades ahead, Ally's transformation into a digital-first, auto-finance powerhouse is not just a story—it's a roadmap to outperforming in a world where adaptability defines success.