IBKR Interactive Brokers
Peak-rate ROE masks a durable franchise trading at 30x normalized book.
The story
Best-in-class electronic broker with structurally high margins, but trailing 21% ROE is inflated by the 2022-2024 rate cycle that boosted client credit interest. Revenue grew 34% CAGR but that reflects rate-driven expansion, not sustainable volume growth. As rates normalize, ROE should mean-revert toward mid-teens on a ~$5.4B equity base.
Trailing 0.21 ROE is peak-rate inflated; normalized 0.155 reflects through-cycle margin compression as client credit interest normalizes and competitive pressure on commissions persists. Book growth trimmed slightly to 0.08 y1 as retained earnings compound at lower returns; terminal 0.045 stays below risk-free. Beta nudged toward industry anchor at 1.15.
Value drivers
| Return on equity (normalized) | 15.5% |
| Book-value growth (Y1) | 8.0% |
| Terminal book growth | 4.5% |
| Beta | 1.15 |
| Failure probability | 0.5% |
| Cost of equity | 10.1% |
Valuation bridge
| PV of excess returns | 1.62B |
| PV of terminal excess | 1.33B |
| Equity value | 8.27B |
| ÷ shares → per share | $18.26 |
News
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- Interactive Brokers Stock Turned $10,000 Into About $110,000 in a Decade. The Customer Base Grew Even Faster.
- Interactive Brokers (IBKR) Turns Every Revenue Dollar Into 77 Cents of Pretax Profit
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- COIN Stock Trades at a Premium to Industry: What Should Investors Do?
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 5.36B | 15.5% | 287.56M | 261.09M |
| 2 | 5.79B | 15.1% | 288.93M | 238.19M |
| 3 | 6.23B | 14.8% | 287.64M | 215.30M |
| 4 | 6.68B | 14.4% | 283.45M | 192.63M |
| 5 | 7.14B | 14.0% | 276.15M | 170.39M |
| 6 | 7.60B | 13.6% | 265.55M | 148.78M |
| 7 | 8.06B | 13.3% | 251.53M | 127.95M |
| 8 | 8.52B | 12.9% | 233.97M | 108.06M |
| 9 | 8.97B | 12.5% | 212.82M | 89.24M |
| 10 | 9.40B | 12.1% | 188.09M | 71.61M |
Key risks
- Rate normalization compresses net interest margin on client credit balances
- Client asset growth slows if retail trading engagement reverts from 2020-2024 surge
- Regulatory pressure on payment for order flow or margin lending practices
Catalysts
- Continued international client expansion and Forex/CRYPTO product rollout
- Higher-rate environment persists longer than expected, sustaining credit interest income
- Share repurchases at discount to intrinsic value
⚠ Extreme gap to market price — large, well-covered names are rarely mispriced this much; likely embeds risk the model underweights. A flag, not a verdict.