Should We Avoid Ally Financial (ALLY) Because of Its Low Analyst Ratings?

Ally Financial may be undervalued, but the 17 analysts following the company give it an rating of hold. Their target prices range from $22.0 to $51.0 per share, for an average of $34.18. At today's price of $25.2, Ally Financial is trading -26.27% away from its average target price, suggesting there is an analyst consensus of strong upside potential for the stock.

Ally Financial Inc., a digital financial-services company, provides various digital financial products and services to consumer, commercial, and corporate customers primarily in the United States and Canada. Based in Detroit, MI, the large-cap Finance company has 11,600 full time employees. Ally Financial has provided a 4.6% dividend yield over the last 12 months.

Ally Financial has a trailing twelve month P/E ratio of 5.0, compared to an average of 14.34 for the Finance sector. Based on its EPS guidance of 5.19, the company has a forward P/E ratio of 4.9.

The average compound growth rate of the company's historical and projected earnings per share is 0.0364193809723965%. On this basis, the company's PEG ratio is 0.17, which suggests that its shares are underpriced.

Furthermore, the market is potentially undervaluing Ally Financial in terms of its book value because its P/B ratio is 0.7. In comparison, the sector average P/B ratio is 1.57. The company's shares are currently -60.4% below their Graham number, indicating that its shares have a margin of safety.

So why does Ally Financial get a bad rating from most analysts despite its seemingly attractive valuation? One reason could be its flat EPS and capex growth trends.