Investing in the stock market is an excellent way to build long-term wealth. If you have a long-term horizon and are willing to take a more aggressive approach, investing in growth stocks can be for you.
If you are searching for a hidden gem, look no further than Interactive Brokers (IBKR 7.65%). The brokerage platform enables investors to trade a diverse array of products across multiple markets. Tailored for both institutional and savvy individual investors, this platform excels in catering to those who thrive on technology and electronic trading.
The company has grown steadily for several years, and continues to show leadership thanks to its low-cost structure and highly automated platform. Here's why you should consider adding this growth stock today.
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1. Interactive Brokers has a global presence
Interactive Brokers provides an electronic brokerage platform for executing and processing trades for a diverse range of investors, including individuals, hedge funds, mutual funds, and registered investment advisors, among others. It offers a wide array of financial products, including stocks, options, futures, foreign exchange, bonds, mutual funds, exchange-traded funds (ETFs), and event contracts (prediction markets).
The company is truly a global one, with a wide reach across 160 market centers in 36 countries, operating across 28 different currencies. Approximately 84% of the company's customers reside outside the U.S., and a majority of its new customers come from international markets, giving it a strong position on a global scale.
2. Its highly automated platform makes it a low-cost leader
Interactive Brokers focuses on tech-savvy investors who prioritize high-level analytics, execution speed, efficiency, and low costs. The company's commitment to this is evident from its leadership. A significant portion of its senior managers are software engineers who are dedicated to automating as much of the business as possible. This approach reflects the company's long-standing focus on developing proprietary software to automate broker-dealer functions since its inception in 1977.
As a direct result of its extensive automation, IBKR has successfully maintained one of the lowest-cost structures in the industry among broker-dealers. This efficiency translates into tangible benefits for its clients, including low transaction costs, low margin rates, and stellar execution, thanks to its proprietary IB SmartRoutingSM system, which continuously seeks out the best available prices.
3. It has best-in-class profit margins
Interactive Brokers' focus on automation not only positions it as a low-cost provider, but also contributes to the company's stellar profit margins. As a result of its low-cost structure, which leads to operational efficiency, Interactive Brokers achieves best-in-class profit margins that surpass many financial companies. Interactive Brokers' pre-tax profit margin was 71% in 2024 and rose to 74% in the first quarter.
Strong profit margins are a result of Interactive Brokers' superior cost structure, highlighting its operational efficiency. It also means that the company is efficiently generating a profit, providing it with more capital to invest in its platform or return to shareholders through dividends.
4. Elevated interest rates are a tailwind
Interactive Brokers specializes in executing, clearing, and settling trades daily, earning commissions from this activity. It offers customers a commission structure that provides for lower commissions for high-volume customers. It also receives revenue from market makers for payment for order flow through its IBKR LiteSM offering, which offers commission-free trading.
While commissions are a primary source of revenue, Interactive Brokers also benefits from the higher interest rate environment. The company primarily earns interest from margin lending, investments in government securities, and from borrowing and lending activities. Meanwhile, it pays customers interest on qualified cash balances. The net of these two, known as net interest income, is the result.
In the first quarter, the company generated $770 million in net interest income, representing a 3% increase from the same period last year. This outpaced its commission income in the quarter, which was $514 million. With the Federal Reserve pausing interest rate cuts, due to concerns about inflation from tariffs, Interactive Brokers should continue to benefit from the elevated rates.
A solid company with a strong balance sheet
Interactive Brokers has plenty of cash on hand, with a balance sheet of $150 billion that is highly liquid (99% liquid according to management). The company also has no long-term debt, and it is growing at an impressive rate. Since the start of 2018, Interactive Brokers has grown its revenue by 491% and net income by 943%.
Given its stellar margins, solid growth, and cost advantages, Interactive Brokers appears to be a solid growth stock for investors to consider purchasing today.
