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Inside Interactive Brokers’ Premium Valuation

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Premium valuation

Interactive Brokers (IBKR) has an NTM (next-12-month) PE ratio of 32.7x, which is higher than peers’ average of 18.5x. The company’s competitors’ NTM PE ratios are as follows:

  • TD Ameritrade (AMTD): 16.5x
  • Charles Schwab (SCHW): 21.9x
  • E*TRADE Financial (ETFC): 17.0x

Brokerages (VFH) are expected to witness strong business momentum because of interest rate hike expectations—higher interest rates boost their interest income. The Fed is expected to hike rates at its June meeting.

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The outlook for brokerages

As brokerages’ clients adopt digital tools, they receive easy access to markets. As a result, brokerages’ customer retention and participation may increase. Brokerages are expected to generate lower trading revenue in the second quarter because of market volatility falling sequentially.

Additionally, brokerages are impacted by financial and economic variables. Any downturn in these variables might limit clients’ trading activities, impacting brokerages’ performance. While Interactive Brokers has an LTM (last-12-month) PE ratio of 20.3x, peers’ LTM PE ratios are as follows:

  • TD Ameritrade: 35.8x
  • Charles Schwab: 31.8x
  • E*TRADE Financial: 23.2x
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