Is Interactive Brokers Overvalued Amid Record Institutional Buying and Strong Earnings?

Interactive Brokers has attracted a wave of institutional investment in Q3 2025, with funds like Cantillon Capital Management LLC and Envestnet Asset Management Inc. dramatically increasing their stakes. Cantillon, for instance, raised its position by 288.7% to hold 12.8 million shares valued at $709.45 million, according to a MarketBeat filing, while Envestnet added 697,782 shares, boosting its stake to $55.69 million, according to the same filing. These moves reflect confidence in the company's operational resilience and scalability.

The earnings story is equally compelling. In Q3 2025, Interactive Brokers reported revenue of $1.66 billion, a 21.2% year-over-year increase, with adjusted earnings per share (EPS) of $0.57, surpassing estimates, according to an IndexBox earnings report. Operating margins hit 79%, up from 64.8% in Q3 2024, according to the IndexBox report, driven by higher trading activity and interest income from client balances. Analysts have responded with bullish price targets, including Goldman Sachs' $91.00 and BMO Capital's $84.00, with a consensus average of $72.08, according to a MarketBeat filing.

Valuation Divergence: P/E Ratios vs. DCF Models

While institutional sentiment and earnings suggest optimism, valuation models present a mixed picture. The P/E ratio of 34.28, as noted in the MarketBeat filing, is significantly above Interactive Brokers' 10-year historical average of 26.13, as reported by FullRatio, and the industry average of 31.25 as of September 2025, according to MacroTrends. This premium reflects expectations of sustained growth but raises questions about whether the stock is priced for perfection.

Discounted Cash Flow (DCF) analyses further complicate the narrative. FinanceCharts estimates an intrinsic value range of $90.02 to $166.49 per share using free cash flow (FCF) models, according to its DCF calculator, implying a potential margin of safety of 21.64% to 57.63% at the current price of $70.54. However, Alpha Spread's DCF model calculates a much lower intrinsic value of $36.05, according to its DCF valuation page, suggesting the stock is overvalued by nearly 50%. The disparity stems from assumptions about growth rates and discount factors: FinanceCharts assumes a 20% EPS growth rate over 10 years, while Alpha Spread adopts a more conservative approach aligned with historical averages, as noted in the FinanceCharts DCF calculator.

Balancing Risks and Rewards

The key to assessing overvaluation lies in reconciling these divergent models with macroeconomic risks. While Interactive Brokers' high-margin business model and scalable infrastructure are strengths, CFO Paul Brody has warned that declining interest rates could reduce net interest income by $77 million annually for each 25-basis-point rate cut, according to the IndexBox earnings report. Additionally, the company's reliance on market volatility for commission revenue introduces cyclicality.

Institutional investors appear to factor in these risks. Cantillon's 288.7% stake increase, as noted in the MarketBeat filing, and Goldman Sachs' $91.00 price target, as noted in the MarketBeat filing, suggest confidence in the company's ability to innovate-such as expanding cryptocurrency offerings and tax-advantaged accounts, as noted in the IndexBox earnings report. However, the DCF discrepancies highlight the market's uncertainty about long-term growth sustainability.

Conclusion: A Stock at a Crossroads

Interactive Brokers' valuation is neither clearly overvalued nor undervalued. The P/E ratio and DCF models reflect a spectrum of assumptions about growth, margins, and macroeconomic conditions. Institutional buying and strong earnings underscore the company's competitive advantages, but investors must weigh these against potential headwinds like rate cuts and market volatility. For those with a long-term horizon and tolerance for volatility, the current price may offer a compelling entry point, particularly if the company continues to execute on innovation. For others, the valuation premium may warrant caution until macroeconomic clarity emerges.