Interactive Brokers is a global brokerage firm that offers a wide range of investment services to retail and institutional investors. It is known for its low-cost trading and tech-heavy investment model. By leveraging software automation, it keep commissions very low, and offers services to a wide range of investors, including those who are on a budget.
IBKR also offers a diverse group of investment products such as stocks, ETFs, mutual funds, futures, foreign exchange instruments, and options. But what stole our attention researching it was a potential 42% upside move based on a valuation analysis.
Key Points
- Interactive Brokers has seen strong revenue growth over several years, but there are some indications that this growth may slow in the future.
- Regardless, it has a compelling bullish investment thesis that signals as much as 42% upside to fair value of $111 per share
Massive Revenue Growth
Interactive Brokers caters to both retail and institutional investors, providing it with a broad customer base. Retail investors get access to low-cost trading, while institutional investors get a wide range of investment products and services.
The brokerage firm has enjoyed strong revenue growth over several years. In 2023, the company’s revenue was $3.1 billion, up from $1.1 billion in 2013. The combination of low-cost trading, cutting-edge technology, and access to numerous asset classes has proven to be a winning combination.
Nonetheless, there are some indications that Interactive Brokers’ revenue growth may slow in the future. In the most recent quarterly report, the company’s commission revenue grew by just 2%. This was offset by much higher interest income, but it suggests that lower stock trading volumes could be a headwind in the future.
Despite an anchor on growth, IBKR stock remains an attractive play, not least because it has a strong track record of profitability, and is well-positioned to continue to grow in the future.
Why Buy IBKR?
Here are some of the factors that make Interactive Brokers a strong investment:
- Strong track record: Profitable for many years, and it has a strong balance sheet.
- Wide range of investment products: Providing it a competitive advantage over other brokerage firms.
- Growing customer base: Fast-growing customer base, which is a sign of strength.
Dangers on the Horizon
Here are some of the risks associated with investing in Interactive Brokers:
- Competition: Commission-free firms like Robinhood pose a significant competitive threat.
- Macroeconomic risks: Inflation and interest rates can impact the stock market and the investment activity of investors.
- Regulatory changes: Can impact the brokerage industry and the business of Interactive Brokers.
Investors should carefully consider these risks before investing in Interactive Brokers.