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How to Play Interactive Brokers Stock Amid Fed's Interest Rates Cuts
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The Federal Reserve is set to start cutting interest rates next week for the first time since March 2020. Historically, the S&P 500 Index has posted positive returns 86% of the time in the 12 months following the first rate cut of the cycle. Hence, the global electronic broker – Interactive Brokers (IBKR - Free Report) – is solidly placed to perform well financially.
In first-half 2024, IBKR garnered record commission fees as the equity markets scaled new highs on the back of clarity on several macroeconomic factors, driving investors to take more assertive positions. Further, as of June 30, 2024, its total customer accounts and total customer Daily Average Revenue Trades (DARTs) surged 28%. These majorly supported the company’s total revenues, which jumped 18% year over year.
Additionally, IBKR witnessed a rise in total customer accounts and total customer DARTs in July and August. This will support top-line growth in the upcoming period. Hence, investors are optimistic about the company’s prospects.
Shares of Interactive Brokers have surged 49.1% this year. This impressive rise has significantly outpaced the 10.4% rally of the industry it belongs to and the 16.2% growth of the Zacks S&P 500 composite.
When compared with its peers in the brokerage space, IBKR’s performance is noticeably stronger. Charles Schwab (SCHW - Free Report) has lost 10.3%, while Tradeweb Markets Inc. (TW - Free Report) stock is up 28.1% in the same timeframe.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
At present, Interactive Brokers stock is trading above its 50-day and 200-day moving average, indicating a bullish trend. This underscores positive market sentiments and confidence in the company's financial health and prospects.
50-Day & 200-Day Moving Average
Image Source: Zacks Investment Research
Given the continuous strength of IBKR shares, many investors are tempted to buy the stock. But is now the correct time to buy the stock, or should investors wait for a better entry point?
IBKR processes trades in stocks, futures, options, cryptocurrencies and forex on more than 150 exchanges across several countries and currencies. Unlike many of its peers, the company has a low level of compensation expense relative to net revenues (12% in the first half of 2024) driven by its technological excellence.
Since its inception, Interactive Brokers has been focused on developing proprietary software to automate broker-dealer functions. This has resulted in a steady growth in revenues as commission per trade continues to improve. Net revenues are expected to rise further, given the solid DART numbers.
Interactive Brokers has been taking several measures to enhance its global presence and expand its product suite. In August 2024, the company announced that its wholly-owned subsidiary, the CFTC-regulated ForecastEx LLC, started operating. The company’s clients from eligible countries will be able to trade Forecast Contracts on upcoming economic data releases and climate indicators.
Additionally, the company is making efforts to bolster its market share. By launching new products and services, IBKR intends to strengthen its position in the online brokerage space.
What Should Investors Do Now – Buy IBKR Stock or Wait?
Despite the rally in IBKR shares, it appears inexpensive relative to the industry. The company is currently trading at the 12-month trailing price-to-tangible book (P/TBV) ratio of 0.88, below the industry’s 4.78.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
Also, the stock is trading well below its peers, TW and Schwab. At present, TW and SCHW’s 12-month trailing P/TB TTM ratios are 10.67 and 7.65, respectively.
Hence, from a valuation perspective, Interactive Brokers’ shares present an attractive buying opportunity. The stock is still undervalued as the market has yet to fully recognize or price the company’s growth prospects.
Further, IBKR is expected to deliver solid results in 2024 and 2025.
Sales Estimates
Image Source: Zacks Investment Research
Earnings Estimates
Image Source: Zacks Investment Research
IBKR is also witnessing northbound estimate revisions for the current and the next year.
Estimate Revision Trend
Image Source: Zacks Investment Research
Interactive Brokers has demonstrated remarkable growth and resilience in the electronic brokerage space, significantly outperforming industry benchmarks and key competitors. The company's proprietary software and strategic expansions have translated into substantial financial gains, marking it as a strong contender in the market.
Given its strong fundamentals, cheap valuation and positive estimate revisions, the stock looks attractive. However, prospective investors should keep an eye on the central bank’s future course of action and see how equity markets are reacting to those. They must keep IBKR stock on their radar and make informed investment decisions.
Image: Bigstock
How to Play Interactive Brokers Stock Amid Fed's Interest Rates Cuts
The Federal Reserve is set to start cutting interest rates next week for the first time since March 2020. Historically, the S&P 500 Index has posted positive returns 86% of the time in the 12 months following the first rate cut of the cycle. Hence, the global electronic broker – Interactive Brokers (IBKR - Free Report) – is solidly placed to perform well financially.
In first-half 2024, IBKR garnered record commission fees as the equity markets scaled new highs on the back of clarity on several macroeconomic factors, driving investors to take more assertive positions. Further, as of June 30, 2024, its total customer accounts and total customer Daily Average Revenue Trades (DARTs) surged 28%. These majorly supported the company’s total revenues, which jumped 18% year over year.
Additionally, IBKR witnessed a rise in total customer accounts and total customer DARTs in July and August. This will support top-line growth in the upcoming period. Hence, investors are optimistic about the company’s prospects.
Shares of Interactive Brokers have surged 49.1% this year. This impressive rise has significantly outpaced the 10.4% rally of the industry it belongs to and the 16.2% growth of the Zacks S&P 500 composite.
When compared with its peers in the brokerage space, IBKR’s performance is noticeably stronger. Charles Schwab (SCHW - Free Report) has lost 10.3%, while Tradeweb Markets Inc. (TW - Free Report) stock is up 28.1% in the same timeframe.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
At present, Interactive Brokers stock is trading above its 50-day and 200-day moving average, indicating a bullish trend. This underscores positive market sentiments and confidence in the company's financial health and prospects.
50-Day & 200-Day Moving Average
Image Source: Zacks Investment Research
Given the continuous strength of IBKR shares, many investors are tempted to buy the stock. But is now the correct time to buy the stock, or should investors wait for a better entry point?
Analyzing Interactive Brokers’ Investment Potential
IBKR processes trades in stocks, futures, options, cryptocurrencies and forex on more than 150 exchanges across several countries and currencies. Unlike many of its peers, the company has a low level of compensation expense relative to net revenues (12% in the first half of 2024) driven by its technological excellence.
Since its inception, Interactive Brokers has been focused on developing proprietary software to automate broker-dealer functions. This has resulted in a steady growth in revenues as commission per trade continues to improve. Net revenues are expected to rise further, given the solid DART numbers.
Interactive Brokers has been taking several measures to enhance its global presence and expand its product suite. In August 2024, the company announced that its wholly-owned subsidiary, the CFTC-regulated ForecastEx LLC, started operating. The company’s clients from eligible countries will be able to trade Forecast Contracts on upcoming economic data releases and climate indicators.
Additionally, the company is making efforts to bolster its market share. By launching new products and services, IBKR intends to strengthen its position in the online brokerage space.
What Should Investors Do Now – Buy IBKR Stock or Wait?
Despite the rally in IBKR shares, it appears inexpensive relative to the industry. The company is currently trading at the 12-month trailing price-to-tangible book (P/TBV) ratio of 0.88, below the industry’s 4.78.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
Also, the stock is trading well below its peers, TW and Schwab. At present, TW and SCHW’s 12-month trailing P/TB TTM ratios are 10.67 and 7.65, respectively.
Hence, from a valuation perspective, Interactive Brokers’ shares present an attractive buying opportunity. The stock is still undervalued as the market has yet to fully recognize or price the company’s growth prospects.
Further, IBKR is expected to deliver solid results in 2024 and 2025.
Sales Estimates
Image Source: Zacks Investment Research
Earnings Estimates
Image Source: Zacks Investment Research
IBKR is also witnessing northbound estimate revisions for the current and the next year.
Estimate Revision Trend
Image Source: Zacks Investment Research
Interactive Brokers has demonstrated remarkable growth and resilience in the electronic brokerage space, significantly outperforming industry benchmarks and key competitors. The company's proprietary software and strategic expansions have translated into substantial financial gains, marking it as a strong contender in the market.
Given its strong fundamentals, cheap valuation and positive estimate revisions, the stock looks attractive. However, prospective investors should keep an eye on the central bank’s future course of action and see how equity markets are reacting to those. They must keep IBKR stock on their radar and make informed investment decisions.
IBKR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.