With the broad U.S. equity market in bear market territory, interest in stock trading isn’t exactly booming right now — a fact underscored by the latest monthly report from Interactive Brokers Group (IBKR), observes Mike Cintolo, editor of Cabot Top Ten Trader.
The firm reported daily average revenue trades in August that were down 9% from a year ago, with client equity down 15%. However, those numbers obscure the stunning growth in client accounts, which rose 33% last month to nearly two million.
Interactive, which offers access to stocks, bonds and funds through its electronic trading platform (the largest in the U.S. based on average revenue trades per client), is tilted toward institutional customers.
Client growth among this class of traders is partly driven by the access the firm offers clients to alternative assets like cryptocurrencies and hedge fund investing, and its strong presence in the alternative asset management space has prompted a major Wall Street bank to put an overweight rating on the stock (a reason for the strength).
Although the company reported an earnings miss in Q2 (EPS of 84 cents missed by eight cents), sales and earnings were relatively flat while commission revenue increased 5% to $322 million on higher customer options and futures trading.
Other highlights include net interest income jumping 27% on higher benchmark interest rates (a trend that should continue given where the Fed is at) and customer balances, and the firm also saw account growth across all five of its client categories (led by a 44% increase in individual accounts).
The bottom line here is that, despite the bear phase, Interactive should see earnings up this year and accelerate in 2023, which is impressive. It also doesn’t hurt that some larger peers are also showing relative strength.
Like most of its brokerage peers, IBKR’s story during the first several months of this year was one of declines, with the stock falling as low as 52 in May before beginning its bottoming process. It held that area into July, found big-volume buying into early August and soared again all the way to 70 this month, notching seven-month highs before pulling in with the market. You can keep an eye on it, or if you want in, consider a small stake in the mid 60s.