Shares of Interactive Brokers (IBKR +1.57%) popped 18.5% in April, according to data from S&P Global Market Intelligence. The global stock brokerage and trading platform posted earnings in the month and is benefiting from a strong rebound in stock trading after the late March and early April panic among equity traders. The company is gaining a ton of market share by acquiring new brokerage customers, and is up 367% in the last five years.
Here’s why Interactive Brokers’ stock was rising in April, and whether you should get in on the action right now.
Interactive Brokers Group
Today’s Change
(1.57%) $1.26
Current Price
$81.72
Key Data Points
Market Cap
$36B
Day’s Range
$80.45 – $82.24
52wk Range
$43.78 – $82.88
Volume
3.4M
Avg Vol
4.7M
Gross Margin
96.24%
Dividend Yield
0.39%
Market share gains in stock trading
Interactive Brokers is a platform that lets you trade stocks, options, bonds, cryptocurrencies, and other financial assets. Unlike other brokerages, it allows users worldwide to trade assets from around the world, including the recently added South Korean market. This differentiation has enabled the business to gain tremendous market share over the last few years.
Last quarter, customer accounts grew 31% year over year to 4.75 million, outpacing the broader industry average. With ruthless cost efficiency, Interactive Brokers achieves best-in-the-world profit margins, with a pre-tax profit margin of 77% last quarter. Investors are betting that Interactive Brokers will keep printing fat margins as the brokerage continues to gain millions of customers worldwide.
On top of strong earnings, Interactive Brokers benefited from a nice market rebound in April. Stock brokers typically generate more revenue as markets climb, making them highly correlated with broad market indices like the S&P 500. With the S&P 500 reaching all-time highs in April, so too did Interactive Brokers.
Image source: Getty Images.
Time to buy Interactive Brokers?
With a fantastic business model, Interactive Brokers’ stock has done well for investors as it adds more customers to its trading platform. Shares have returned 816% over the last decade, crushing the market averages.
But is it a good buy today? Right now, the stock trades at a price-to-earnings ratio (P/E) of 35, one of its highest levels in years, even as revenue and earnings are above average due to increased trading activity in a massive bull market. This is going to make it difficult for forward returns to look the same as they did in the last decade.
There are major risks to buying Interactive Brokers stock at all-time highs. One, a bear market could present a headwind to its business performance (not just the stock price). Two, shares may compress to a lower P/E ratio that is closer to the company’s long-term average. With these risks in mind, investors should hold off buying Interactive Brokers stock right now.
Brett Schafer has positions in Interactive Brokers Group. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.
