IBKR Left Out of the S&P 500: Time to Buy the Dip or Wait it Out?
Shares of Interactive Brokers Group IBKR, a potential candidate for the S&P 500, sank 3.4% yesterday on non-inclusion in the benchmark index. On Friday, S&P Dow Jones Indices announced no changes to the S&P 500 during its quarterly rebalance.As such, investors turned bearish on IBKR and other potential candidates, including Robinhood Markets HOOD. Robinhood closed the session yesterday down 2%.Online brokers like IBKR, Robinhood and Charles Schwab SCHW have been benefiting from heightened market volatility and a rise in client activity on tariff concerns and rising geopolitical risks. The trend is expected to continue as markets and investors try to decipher the impact of tariffs on various sectors. Hence, over the past three months, shares of these brokerage firms – Interactive Brokers, Robinhood and Schwab – have been rallying. Further, these stocks have outperformed the industry in the same time frame.
Three-month Price Performance
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As IBKR stock dipped yesterday, let's find out whether this is a buying opportunity.
Global Exposure Through Product Diversification: IBKR has been taking several steps to enhance its presence globally. In May, the company extended trading hours for its Forecast Contracts to about 24 hours a day, which will boost its trading income. This move comes nearly a month after it launched Forecast Contracts in Canada, allowing investors to trade on the outcomes of several events impacting markets. In February, the company announced the expansion of its offering of Stocks and Shares Investment Savings Accounts with the addition of mutual funds in the U.K. This would allow investors to access a wide range of investment products in a tax-efficient savings vehicle, along with advanced trading platforms, low fees and global diversification. Last November, IBKR launched Plan d'Epargne en Actions accounts to boost its offerings to its French clients. Also, the launch of IBKR GlobalTrader has enabled investors worldwide to trade stocks through mobile applications.The company was one of the first brokers to introduce Overnight Trading on U.S. stocks and ETFs nearly 24 hours a day, five days a week. IBKR Lite has enabled investors to trade commission-free. Further, it launched cryptocurrency trading via Paxos Trust Company, charging lower commissions compared to other crypto exchanges. The introduction of IBKR Desktop, the next-generation desktop trading application for Windows and Mac, marks a new chapter for innovation.The company's technological superiority, combined with easier regulations to improve product velocity, will support its net revenues through higher client acquisitions.Technological Excellence: Interactive Brokers' technological superiority remains one of its strongest aspects. The company processes trades in stocks, futures, options and forex on more than 150 exchanges across several countries and currencies. IBKR's compensation expense relative to net revenues (10.8% in the first quarter of 2025) remains below its industry peers due to its superior technology. Further, the company has been emphasizing developing proprietary software to automate broker-dealer functions, leading to a steady rise in revenues. Total net revenues witnessed a compound annual growth rate (CAGR) of 21.8% over the last five years (2019-2024). The momentum continued in the first three months of 2025. Net revenues are expected to improve further in the quarters ahead, given the solid DART numbers and robust trading backdrop driven by higher market participation.
IBKR's Sales Estimates
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IBKR shares appear inexpensive relative to the industry. The company is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.29X, well below the industry's 2.88X.
Price-to-Tangible Book Ratio (TTM)
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Also, the stock is trading below its peers, Robinhood and Schwab. At present, Robinhood and Schwab's 12-month trailing P/TB TTM are 8.84X and 7.74X, respectively.From a valuation perspective, Interactive Brokers shares present a compelling buying opportunity. The stock is still trading at a discount as the market has not yet fully recognized or priced the company's growth prospects.
Over the past two months, the Zacks Consensus Estimate for 2025 and 2026 earnings has been revised 3.6% and 3.4% downward to $7.06 and $7.56, respectively.
Estimate Revision Trend
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The projected figures imply a rise of 0.4% and 7.1% for 2025 and 2026, respectively.
Interactive Brokers remains well-positioned for growth in the current volatile operating environment. Also, rapidly evolving trends will benefit the company's revenues and expand its market share. The company's strong technological capabilities and diversified product offerings enhance its global reach, supporting long-term growth. Also, undervalued shares are another positive.However, Interactive Brokers has witnessed a persistent rise in non-interest expenses over the past few years. Expenses witnessed a CAGR of 13.8% over the five years ended 2024, with the trend persisting in the first quarter of 2025. Expenses are likely to remain elevated due to continued investment in franchises, product launches and technology upgrades. Further, rising geopolitical risks, foreign exchange fluctuations and tariff concerns are likely to affect global growth prospects, as reflected in the bearish analyst sentiments.Hence, investors must watch for these headwinds and, for now, refrain from buying Interactive Brokers shares. Those who own the stock may consider selling it. At present, IBKR carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD) : Free Stock Analysis Report
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