Interactive Brokers Group Inc (IBKR, Financial) recently reported a daily gain of 2% and a 3-month gain of 4.74%. With an Earnings Per Share (EPS) (EPS) of 4.9, investors may wonder if the stock is modestly undervalued. This article delves deep into the company's valuation, providing a comprehensive analysis of its intrinsic worth. We invite you to explore this financial journey with us.
Company Overview
Interactive Brokers Group Inc (IBKR, Financial) is an online brokerage that facilitates trading in a wide range of products, including equity, options, futures, foreign exchange, bonds, mutual funds, and ETFs. The company generates trading commissions (around 43% of net revenue), net interest income (about 54% of net revenue) from idle client cash, and fees (about 6% of net revenue) from ancillary services. The firm derives about 70% of its net revenue from the U.S. and 30% from international markets. With a current stock price of $87.38 per share and a market cap of $9.30 billion, the company appears to be modestly undervalued when compared to its GF Value of $103.46.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Our GF Value Line gives an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it indicates overvaluation and potentially poor future returns. Conversely, if the price is significantly below the GF Value Line, it suggests undervaluation and a higher likelihood of strong future returns.
Considering these factors, we believe Interactive Brokers Group (IBKR, Financial) is modestly undervalued. The company's stock price is currently below the GF Value Line, suggesting a higher likelihood of strong future returns. This valuation status implies that the long-term return of Interactive Brokers Group's stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of capital loss. Thus, it's crucial to review a company's financial strength before investing. Interactive Brokers Group has a cash-to-debt ratio of 0.36, ranking lower than 78.49% of 753 companies in the Capital Markets industry. This suggests that the financial strength of Interactive Brokers Group is poor.
Profitability and Growth
Investing in profitable companies generally carries less risk. Interactive Brokers Group has been profitable 10 years over the past 10 years. With revenues of $6.20 billion and an Earnings Per Share (EPS) of $4.9 in the past 12 months, the company's operating margin of 42.23% is better than 78.73% of 644 companies in the Capital Markets industry. This indicates strong profitability .
However, the company's growth is not as impressive. The 3-year average annual revenue growth rate of Interactive Brokers Group is 6.3%, ranking lower than 51.26% of 677 companies in the Capital Markets industry. The 3-year average EBITDA growth rate is 6.2%, ranking lower than 60.26% of 468 companies in the Capital Markets industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also help determine profitability. When the ROIC is higher than the WACC, it suggests the company is creating value for shareholders. For the past 12 months, Interactive Brokers Group's ROIC is 12.94, and its WACC is 5.04, indicating value creation.
Conclusion
In summary, the stock of Interactive Brokers Group (IBKR, Financial) appears to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks lower than 60.26% of 468 companies in the Capital Markets industry. To learn more about Interactive Brokers Group stock, you can check out its 30-Year Financials here.
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