Analyst: Consumer Finance Sector Re-Rated "Too Quickly"

The analyst said there's a gap between fundamentals and valuation

Deputy Editor
Apr 3, 2024 at 10:28 AM
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Shares of consumer lending stock Ally Financial Inc (NYSE:ALLY) are down 0.7% at $38.76 at last glance, following a bear note from J.P. Morgan Securities. The analyst downgraded ALLY to "underweight" from "neutral," after saying the consumer finance sector re-rated "too quickly," resulting in a disproportion between fundamentals and valuations. 

However, J.P. Morgan Securities also added that investors should seize the opportunity to take advantage of the recent rally before earnings, and increased its price target on Ally Financial stock to $39 from $37. Coming into today, analysts were split on the equity, with eight calling in a "buy" or better and 11 rating it a "hold" or worse.

Over in the options pits, calls are all the rage. Ally Financial stock's 50-day call/put volume ratio of 1.52 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than all other readings from the past 12 months. Echoing this, ALLY's Schaeffer's put/call open interest ratio (SOIR) sits in the low 15th percentile of annual readings, implying a call-bias amongst short-term options traders as well. The shares could suffer should this optimism begin to unwind. 

Betting on ALLY's next move with options looks like a good route to take. This is because premium players are pricing in low volatility expectations, per the security's Schaeffer's Volatility Index (SVI) rating of 41% that ranks higher than just 23% of readings from the past year.

On the charts, Ally Financial stock continues to pull back from its March 21, nearly two-year high of $41.56. The $39 level previously acted as a floor for this retreat, but $38 is now stepping up to try and provide support. Plus, ALLY is still up 10.6% and 49.5% year to date and year over year, respectively. 


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