Both companies sport clean balance sheets and solid profitability with substantially better results expected for 2010. Each stock is down dramatically from their bull market valuations and now trades at nice discounts to the better-known industry competitors Charles Schwab and TD Ameritrade based on P/E and P/BV.
I believe this translates to a great opportunity for investors seeking good-quality shares that have yet to reflect the improving market conditions. Compare the values available for IBKR and OXPS versus AMTD and SCHW based on current prices.
|
Company |
11/9/09 Close |
2009 Est. |
2010 Est. |
2009 P/E |
2010 P/E |
Price/ B/V |
|
IBKR |
$17.14 |
1.10 |
1.47 |
15.6x |
11.7x |
1.2x |
|
OXPS |
$15.85 |
1.06 |
1.29 |
15.0x |
12.3x |
2.9x |
|
AMTD* |
$20.38 |
1.05 |
1.25 |
19.4x |
16.3x |
3.5x |
|
SCHW |
$17.83 |
0.72 |
0.89 |
24.8x |
20.0x |
4.5x |
|
| ||||||
|
*AMTD reflect FYs ending Sep. 30 | ||||||
Using a very conservative assumption of just 16 times next year’s projections, leads me to the following target prices for these four stocks.
|
Company |
2007-2008 Peak Price |
2008-2009 Trough Price |
% Drop from Peak |
Est. Gains @16x 2010 EPS |
|
IBKR |
$35.93 |
$12.68 |
(64.7%) |
37.2% |
|
OXPS |
$34.95 |
$8.38 |
(76.0%) |
30.2% |
|
AMTD* |
$23.50 |
$9.30 |
(60.4%) |
(1.9%) |
|
SCHW |
$28.80 |
$11.00 |
(61.8%) |
(20.1%) |
Here are the average multiples over the past few years for each of these companies since 2005. Based on today’s prices and next year’s projections IBKR and OXPS seem to offer much better upside and less risk than Schwab and Ameritrade.
|
Company |
Average P/E |
Est. 2010 P/E |
Discount to Avg. |
|
IBKR* |
16.8x |
11.7x |
30.4% |
|
OXPS |
18.1x |
12.3x |
32.0% |
|
AMTD |
17.1x |
16.3x |
4.7% |
|
SCHW |
21.7x |
20.0x |
7.8% |
Outright purchase of both IBKR and OXPS offers better than 30% upside over the next 12 months based simply on a regression to more normalized valuation metrics and a somewhat improving overall market.
Disclosure: Author is long IBKR and OXPS shares and short IBKR and OXPS options.
___________________
Dr. Paul Price: After college at The American University [BS - 1971] and dental school at University of Pennsylvania [DMD - 1977] Paul served as a dental officer in the United States Air Force both domestically and overseas in Turkey and England. As his student loans diminished he was seduced by the market. From casual investing, starting in 1977, he devoted more and more time to equity research. In 1987 he made a full-time career switch by joining Merrill Lynch. Over the next 13 years he also worked with A.G. Edwards, Wheat First [now Wachovia Securities], and Ferris, Baker Watts. Dr. Price had enough success to retire in October 2000 but continues to help friends and family with their investments. He continues to give occasional investment seminars for civic groups and business schools.
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User Comments:
1. Stockdocx99 says on Nov 10, 2009 at 9:13 AM:
INTERACTIVE BROKERS GROUP REPORTS BROKERAGE METRICS FOR OCTOBER 2009 AND ANNOUNCES UPCOMING PRESENTATION
Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic market maker and broker, today reported its Electronic Brokerage monthly performance metrics for October and announced that Chairman and Chief Executive Officer Thomas Peterffy will present at the Keefe, Bruyette & Woods 2009 Securities Brokerage and Market Structure Conference on Thursday, November 5, 2009 at 11:15 a.m. EST.
Highlights for the month included:
- Ending customer equity of $14.1 billion, 58% higher than October 2008 and 5% higher than prior month.
- Ending customer credit balances of $10.1 billion and customer margin loan balances of $3.0 billion.
- 330 thousand Daily Average Revenue Trades (DARTs) in October 2009, up 2% from prior month.
- 645 annualized average cleared DARTs per customer account.
- 129.8 thousand customer accounts, 19% higher than October 2008 and 2% higher than prior month
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2. Stockdocx99 says on Nov 16, 2009 at 5:19 PM:
New Purchase: Interactive Brokers Group Inc. (IBKR)
[url=http://www.gurufocus.com/StockBuy.php?GuruName=Mohnish+Pabrai]Mohnish Pabrai[/url] initiated holdings in Interactive Brokers Group Inc.. His purchase prices were between $15 and $20.06, with an estimated average price of $18.07. The impact to his portfolio due to this purchase was 0.58%. His holdings were 95,004 shares as of 09/30/2009.INTERACTIVE BROKERS is an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities, futures and foreign exchange instruments on more than 70 electronic exchanges and trading venues around the world. As a market maker, they provide liquidity at these marketplaces and, as a broker, they provide professional traders and investors with direct access to stocks, options, futures, forex and bonds from a single IB Universal AccountSM. Interactive Brokers Group Inc. has a market cap of $707.64 million; its shares were traded at around $17.17 with a P/E ratio of 13.21 and P/S ratio of 0.32.
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3. Scubasteve10 says on Nov 16, 2009 at 7:46 PM:
Using a very conservative assumption of just 16 times next year’s projections, leads me to the following target prices for these four stocks.
Do you really think 16x forward earnings is very conservative?
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4. Stockdocx99 says on Nov 16, 2009 at 9:32 PM:
Yes. 16x is lower than the average P/E of each of the four brokerage stocks mentioned based on their past trading histories.
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