Global electronic broker Interactive Brokers Group, Inc. (IBKR) recently reported a strong fourth-quarter earnings report. Its adjusted revenue and earnings per share of $683 million and $0.83 increased 17.4% and 20.3%, respectively. However, its daily average revenue trades came in at 2.23 million, down 3% year-over-year and 20% sequentially.

IBKR has lost 6.7% over the past month and is currently trading 13.2% below its 52-week high of $82.83, which it hit on December 28, 2021. However, even with this pullback, the stock is trading at a premium to its peers.

Here’s what I think could influence IBKR’s performance in the upcoming months:

Weaker-than-industry Profitability

In terms of trailing-12-month net income margin, IBKR’s 11.40% is 61.9% lower than the industry average of 29.92%. Likewise, its trailing-12-month ROTA of 0.29% is 78.3% lower than the industry average of 1.35%. Moreover, the stock’s trailing-12-month asset turnover ratio of 0.03% is 86.3% lower than the industry average of 0.21%.

Stretched Valuation

In terms of forward non-GAAP P/E, IBKR’s 20.84x is 75.7% higher than the industry average of 11.87%. Also, in terms of trailing-12-month P/B, IBKR’s 3.03x is 129% higher than the industry average of 1.32x.

Weak Growth Estimates

Analysts expect IBKR’s revenue to decline 22.5% year-over-year to 692.14 million for the quarter ending March 31, 2022, and 7.2% for the following quarter. Its EPS is expected to decline 15.6% to $0.83 for the first quarter of 2022.

POWR Ratings Reflect Bleak Prospects

IBKR has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, IBKR has a C grade for Quality, in sync with its lower-than-industry profitability ratios.

IBKR also has a D grade for Growth, consistent with analysts’ expectation that its EPS and revenue will decline for the quarter ending March 31, 2022.

Beyond what I have stated above, we have also given IBKR grades for Value, Sentiment, Stability, and Momentum. Get all the IBKR ratings here.

IBKR is ranked last out of 22 stocks in the A-rated Investment Brokerage industry.

Bottom Line

As the stock is currently trading at a stretched valuation and analysts expect its revenue and EPS to decline in the near term, it is best avoided now.

How Does Interactive Brokers (IBKR) Stack Up Against Its Peers?

While IBKR has an overall POWR Rating of D, you might want to consider investing in the following Investment Brokerage stocks with an A (Strong Buy) or B (Buy) rating: Manning & Napier, Inc. (MN), Piper Sandler Companies (PIPR), and Greenhill & Co., Inc. (GHL).

IBKR shares were trading at $72.47 per share on Wednesday afternoon, up $0.54 (+0.75%). Year-to-date, IBKR has declined -8.75%, versus a -4.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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