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Quality Growth Company Meets Value With IBKR Stock

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Buy quality growth companies at reasonable prices, and you will do well over time as an investor.

When it comes to investing, this is the best advice you could follow.

And the first stock that comes to mind when I think of this philosophy is Interactive Brokers (Nasdaq: IBKR).

Interactive Brokers offers online trading in stocks, bonds, options, futures and other securities.

The company makes money from the commissions it charges on trades and from interest earned on its cash deposits and customer margin loans.

Its clients range from individuals and financial advisors to hedge funds.

What sets Interactive Brokers apart from its competitors is that it has the preferred trading platform for sophisticated and active traders.

Interactive Brokers offers exactly what these customers value: superior execution, low costs, a high level of automation and access to global markets.

The company’s core customer makes more than 300 trades per year. That is six times more than the 50 trades that a typical retail investor makes.

More trading means more commission revenue for Interactive Brokers.

With the company’s incredibly high level of automation and more active customers, Interactive Brokers’ 60% operating margins are the best in its industry.

Like so many great companies, Interactive Brokers is led by an entrepreneur who founded the company, and he still runs it with a ton of skin in the game.

That entrepreneur is Chairman Thomas Peterffy.

His obsession with Interactive Brokers having the best-in-class trading technology is what has given the business its competitive edge.

Peterffy still owns 75% of the shares, which means that he has more than $20 billion of his own money invested alongside shareholders.

Since 2015, the company has grown its earnings per share by almost 400%.

Chart: Interactive Brokers' Earnings per Share Change
So clearly this is a quality growth company. And the exciting part is that there is still a long run of growth ahead.

Currently, with just 2 million clients, Interactive Brokers is still just a small player in a huge industry. There is plenty of market share yet to be won.

Plus, its corporate balance sheet is pristine.

At the end of the first quarter of this year, Interactive Brokers had $3.2 billion in cash and zero dollars of long-term debt. That low-risk balance sheet shouldn’t be a surprise given that the man at the top of the company has everything on the line with this business.

When you put the whole story together, this company ticks a lot of boxes that smart investors are looking for…

  • It’s run by a driven founder/shareholder with massive skin in the game.
  • It’s growing earnings at a rapid clip.
  • It has years and years of growth ahead of it.
  • It’s built on a rock-solid balance sheet.

The cherry on top in this case is valuation.

Priced at 14 times forward earnings, Interactive Brokers is trading at a discount to the overall market while growing earnings faster than the average company.

In the business, we call this “growth at a reasonable price” (GARP).

The Value Meter ranks Interactive Brokers as “Slightly Undervalued.”

The Value Meter

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