Undervalued growth stocks are often a top investment choice for long-term investors. That's because cheap growth stocks have the potential to deliver outsized gains over time, and may generate game-changing returns for investors. 

One such large-cap stock is Interactive Brokers (IBKR). Valued at $36.93 billion by market cap, Interactive Brokers stock is down 9.1% from all-time highs. But over the last 10 years, Interactive Brokers stock has returned close to 310% - much higher than the S&P 500 Index ($SPX), which has risen 210% since January 2014.

While past returns don’t matter much to future investors, let’s see why I believe IBKR stock is positioned to outpace the broader markets in 2024 and beyond. 

An Overview of Interactive Brokers

Interactive Brokers operates an automated electronic broker. It specializes in processing trades across asset classes, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), commodities, and even cryptocurrencies. 

With a presence in 27 countries, IBKR has increased sales from $1.9 billion in 2019 to more than $3 billion in 2022. A key driver for its top-line growth can be attributed to the exponential rise in the number of retail traders and investors globally. 

How Did IBKR Perform In Q3 of 2023?

Interactive Brokers reported adjusted earnings per share of $1.55 in Q3, compared to $1.08 per share in the year-ago period. Its sales rose to $1.14 billion, up from $847 million in the year-ago period. 

The company’s commission revenue grew by 4% to $333 million, while customer trading volume was mixed across product types. For instance, while volume for options contracts grew 18%, futures contracts and share trading volumes fell by 1% and 22%, respectively. 

IBKR’s net interest income rose by 55% to $733 million due to higher benchmark interest rates and customer credit balances. Its other income also surged by $27 million to $75 million in the quarter. Interactive Brokers ended Q3 with 2.43 million customer accounts, up 21% year over year. 

Is IBKR Stock Undervalued?

Analysts tracking IBKR expect its sales to rise from $4.36 billion in 2023 to $4.71 billion in 2024. Adjusted earnings are forecast to expand from $4.05 per share in 2022 to $6.33 per share in 2024.  So, priced at 14x forward earnings, IBKR stock is very cheap, given its earnings are estimated to rise by almost 20% annually in the next five years. 

Generally, the performance of brokerage platforms, such as Interactive Brokers, are tied to equity markets. For instance, trading volumes tend to rise during bull markets and also during periods of heightened volatility, allowing IBKR to benefit from higher fees and commissions. 

With an election year and an upcoming Fed pivot set to drive an interesting year for U.S. equities, IBKR’s low valuation multiples make it a top growth stock to own right now. 

What Is the Target Price for IBKR Stock?

Out of the eight analysts tracking IBKR, six recommend “strong buy,” one recommends “moderate buy,” and one recommends “hold.” The average price target for IBKR is $107.12, which is 23% above current prices.