Interactive Brokers Group Inc (IBKR, Financial) has experienced a daily loss of 3.04%, with a 3-month decline of 11.81%, bringing into question its current valuation. With an Earnings Per Share (EPS) of 5.49, investors are keen to understand if the stock is modestly undervalued. This article delves into the valuation analysis of Interactive Brokers Group, providing investors with a clearer picture of its market position and potential for future returns.
Company Overview
Interactive Brokers Group Inc is a prominent online brokerage, deriving roughly 43% of its net revenue from trading commissions across various products. Net interest income from client cash balances contributes to about 54% of its net revenue, while ancillary services account for approximately 6%. Despite minor losses from principal trading and other activities, Interactive Brokers Group maintains a strong presence, with 70% of its revenue generated from the U.S. and 30% internationally. As we compare the stock price of $81.2 to the GF Value of $100.13, it becomes evident that there may be more to Interactive Brokers Group's valuation than meets the eye.
Understanding GF Value
The GF Value is a unique measure of intrinsic stock value, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, alongside future business performance projections. The GF Value Line suggests a fair trading value for the stock, with prices likely to oscillate around this benchmark. Interactive Brokers Group (IBKR, Financial), with a market cap of $8.70 billion, is currently considered modestly undervalued, indicating potential for higher future returns relative to its business growth.
Financial Strength Assessment
Investors must consider a company's financial strength to avoid the risk of capital loss. Interactive Brokers Group's cash-to-debt ratio of 0.36 ranks below 76.7% of its industry peers, signaling potential concerns. The overall financial strength rating of 4 out of 10 suggests that Interactive Brokers Group's financial robustness could be improved.
Profitability and Growth Prospects
Consistent profitability is a key indicator of lower investment risk. Interactive Brokers Group has maintained profitability for the last decade, with a remarkable operating margin of 82.98%, outperforming 92.24% of the industry. This strong profitability, rated 8 out of 10, is complemented by a 3-year average annual revenue growth of 7.2%, although its EBITDA growth rate lags behind more than half of the industry.
ROIC vs. WACC: A Profitability Indicator
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) reveals a company's value creation efficiency. Interactive Brokers Group's ROIC of 29 exceeds its WACC of 19.24, indicating effective cash flow generation relative to capital investment.
Conclusion: Interactive Brokers Group's Valuation
Overall, Interactive Brokers Group (IBKR, Financial) appears modestly undervalued. Despite its subpar financial condition, the company's profitability is robust, and its growth prospects are moderate. For a more detailed financial analysis, investors can review Interactive Brokers Group's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
