Electronic investment broker, Interactive Brokers (NASDAQ:IBKR), isn’t exactly a household name, but it made terrific headway this morning. Leading the charge for Interactive Brokers’ rise were gains on two fronts. First, there was the 3% gain in commission revenue for the quarter, which the company generates from executing and clearing trades in securities, futures, foreign exchange, bonds, and mutual funds. Second, there was the massive gain in net interest income, which was up a hefty 73%.
Interactive Brokers is clearly making a comeback, but there’s a lot of underlying strain in the market. Thus, I’m neutral on Interactive Brokers.
Investor Sentiment is a Very Mixed Picture for IBKR Stock
Investor sentiment metrics for Interactive Brokers have little middle ground. It’s either feast or famine right now. Currently, Interactive Brokers scores a perfect 10 on TipRanks’ Smart Score tool. That’s the highest score a stock can get. It represents a near-certainty that the company in question will outperform the market.
Despite this, however, Interactive Brokers insiders don’t seem especially interested in strengthening their positions with their own company’s stock. Insider trading at Interactive Brokers has been comparatively quiet.
The company hasn’t seen an informative transaction in any direction, buy or sell, in over a year. In fact, every insider transaction made in the last four months can be traced directly to chairman and director Thomas Peterffy.
The aggregate won’t offer much help here. There have been no transactions of any sort made since last July when Peterffy both sold and bought shares. Looking back at the last 12 months is a river of red. Insiders bought shares 17 times but sold shares a whopping 135 times.
Almost Every Positive Has a Negative Match for Interactive Brokers
There are some clear advantages to Interactive Brokers right now. The biggest of these is that the company is only slightly more expensive than it was this time last year. Better yet, that expense is still well below even the lowest price targets, which suggests some clear upward potential. However, there’s one serious problem staring this company—indeed, the entire sector—in the face. Specifically, it’s the massive inflationary recession we’re looking at right now.
With many potential investors pulling back in favor of keeping gas in the car, food on the table, and lights on in the house—not to mention heat—the idea of investing in anything probably looks like a pipe dream.
It’s clear that the company has complete support in the analyst sector. Jefferies’ Daniel Fannon held the Buy rating already established on the company. The trouble here, though, is that Fannon is one of just three analysts with any kind of visibility on Interactive Brokers. The unanimity is encouraging. The silence, however, is deafening.
Some might take comfort in the fantastic earnings report the company released, but that’s part of the problem as well. Yes, the company saw a huge jump in earnings. However, much of that could be traced directly back to rising interest rates. Interactive Brokers had about as much to do with interest rate hikes as it has to do with high tide.
Commission rates did increase though, if only by a modest 3%, which the company had everything to do with, and a win is a win. Additionally, the company made itself just a little more attractive to investors by offering up a $0.10 quarterly dividend.
It’s little more than a drop in the bucket in absolute terms, but offering a dividend these days is something of a feat on its own merits. There’s also substantial gain potential in retail account growth. The company is working toward a goal of being used by 1% of the planet.
The rising inflation figures and volatility in stocks will help increase trading volume. This much is fairly certain, and greater trading volume means greater commissions for Interactive Brokers. That will likely also allow it to subsidize certain fee-free trades, allowing it to maintain a position in the list of brokers that offer commission-free trades.
Is IBKR a Good Stock?
Turning to Wall Street, Interactive Brokers has a Strong Buy consensus rating. That’s based on three Buys assigned in the past three months. The average Interactive Brokers price target of $87 implies 15.66% upside potential. Analyst price targets range from a low of $82 per share to a high of $94 per share.
Conclusion: IBKR Stock is Looking Good in a Bad Neighborhood
Here’s the problem with Interactive Brokers: it looks good but everything around it looks like a disaster. The company is at an excellent buy-in point and enjoys total analyst support. It’s seeing its revenue jump and offering dividends, which aren’t a certainty anymore. The only problem for Interactive Brokers is that it’s likely to face a significant economic downturn.
Sure, there will always be some percentage of the population investing. However, with job cuts increasing and the price of goods surging, that’s going to leave a lot less for investment commissions. Thus, I’m neutral on Interactive Brokers, as a wait-and-see approach might be the best call.
