Allied financial (NYSE: ALLY) entered the pandemic with a record stock price, but really showed its experience in beating profit estimates for the past three quarters thanks to its consumer-focused business mix. As an exclusively online bank, it was perfectly positioned to serve customers in the stay-at-home economy. The company now aims to expand its huge success in auto finance with other products, such as mortgages, to drive future growth. If the company’s current earnings trends continue, it could become an important part of your portfolio.

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Gains for the record books

Many companies can boast a rich history, but few have seen as many storms as this century-old financial institution. Founded in 1919 by General Motors to provide auto financing to its customers, Ally Financial remains true to its roots. It is the leader in auto finance, currently holding 7.7% of all auto loans in the United States – $ 106.2 billion in loans to 4 million customers.

The pandemic resulted in 14.6% fewer cars being sold in the United States last year, but Ally’s loan portfolio fell only 6.5%, a notable outperformance. The company built its relationships with car dealers to 18,700 – a record – in an effort to reach more individual consumers amid weakness in other segments like fleet sales. Obviously, a move that paid off resulting in a 54% increase in income as these loans offer higher margins.

Supply chain disruptions sparked a shortage of new cars, pushing average transaction prices to a record $ 38,000, which helped cushion the blow from declining sales.

With further growth in its insurance, corporate finance and mortgage businesses, the company posted two consecutive quarters of record profits at the end of 2020:

Source: documents filed by the companies, Yahoo Finance.

According to Yahoo Finance, 13 analysts have an average profit estimate of $ 4.53 for 2021 and $ 5.51 for 2022. Applying a market average earnings multiple of 16 times, this could mean a stock price. $ 72.48 this year and $ 88.16 in 2022! With a closing price on April 5 of just $ 46.92, this could represent a significant opportunity.

Ally’s performance can be measured against KRE, an S&P ETF for regional banking. Since the trough of the pandemic in March 2020, the KRE has increased by 133%. By comparison, Ally Financial’s stock has increased by 360% over the same period! The company is recognized for its operational performance, but based on estimates, there is still room to go further.

Consumer power

Armed with $ 5.3 trillion in stimulus from the federal government, consumers appear to have weathered the worst of the economic shock of the pandemic. Evidence that these payments are fueling the economy has appeared in Ally Financial’s annual results for 2020. The company posted staggering growth in key consumer segments compared to 2019, including:

• $ 124.4 billion in deposits from 2.25 million customers, up 20% and 14% respectively. This could be attributable to direct checks on consumers as part of the stimulus packages.
• $ 4.7 billion in new direct mortgage loans to consumers, up 74%. With the shortage of single family homes, consumers are forced to pay more and therefore borrow more.
• $ 503 million in new personal loans, up 75%.
• 406,000 new self-directed investment accounts, up 17%. These customers held $ 13.4 billion in assets, a growth of 70%. If you’ve been watching the markets for the past year or so, it won’t be surprising with the boom in retail investors buying stocks.

Auto sales in the United States are expected to return to growth in 2021, which should strengthen Ally’s core finance and insurance businesses. First quarter figures are available, showing 11.8% more cars sold compared to the first quarter of 2020, due to strong consumer demand and low interest rates.

Find an extension

As a bank focused solely on online technology, Ally Financial’s business relationships are essential. The success of its automotive business can be attributed to the 18,700-person dealer network that connects it to consumers, but Ally has yet to replicate this advantage in other product areas.

As more and more of the loan origination process moves online, the company is well positioned to expand further into other segments such as mortgages. With high year-over-year growth, its success so far is clear, but time will tell if Ally can pull a significant chunk out of the big banks. Competing with the physical presences of competitors can be tricky, as Ally may not generate the same level of brand awareness in a very saturated space.

In the short term, the company will likely be better served by focusing on its biggest business, the automotive industry, taking advantage of the stimulus-induced consumer spending surge that is expected to continue.

Ally Financial reports its first quarter results on April 19. The company is expected to deliver $ 1.08 per share, a figure similar to the fourth quarter which was handily beaten. With the American economy now Following open, and another freshly passed stimulus bill, watch the company exceed expectations yet again.

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Foolish contributor Anthony Di Pizio owns shares of Ally Financial. The Motley Fool has no position in any of the stocks mentioned. Ally is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.