The company is not the stock. It’s a common saying in investing. Just because a company is thriving doesn’t always mean its share price will follow suit. The latest reminder of that is the collective indifference among online brokerage stocks in response to record sign-ups at online brokerage firms.
Last week, many online brokers reported record activity and new account sign-ups. Charles Schwab (SCHW), ETrade (ETFC) and Interactive Brokers (IBKR) — three of the four biggest U.S. online brokerages — each hit record numbers of account sign-ups in either March or April, adding a collective 780,000 new customers.
Trading volume on Robinhood, the upstart online broker aimed at new investors, tripled in March compared to the average trading volume in the fourth quarter of 2019. Interactive Brokers set a record in March for the number of cleared trades reported, and added another 46,000 new brokerage accounts in April. Overall, log-ins to online brokerage accounts on mobile phones are up between 35% and 50% versus a year ago.
It all shows that on the heels of the historic market crash in late February and the first three weeks of March, investors of all ages—including people who had never invested on their own before—have been buying stocks for the presumed rebound. Americans love a good deal—and after a 34% stock market nosedive, folks with or without a brokerage account spotted a deal.
That’s been a boon to online brokers. How has it been for online brokerage stocks? Let’s look at how each of the major public companies have fared so far this year, compared to the S&P 500:
4 Underperforming Online Brokerage Stocks
Charles Schwab (SCHW): -29%
ETrade (ETFC): -7%
Interactive Brokers (IBKR): -15%
TD Ameritrade (AMTD): -29%
S&P 500: -8%
Only ETrade stock is beating the market, and that’s by a very slim margin. The rest are down considerably.
Have online brokerage stocks gotten a better-than-average bump since the March 23 bottom, when sign-ups and trading activity presumably picked up and stocks began what is now a two-month rally? Not really. The S&P is up 32.5% during that time. Shares of the four online brokers mentioned above have rallied an average of 25.5%. Among them, only ETFC is currently trading above its 50-day moving average, and all are trading below their 200-day lines.
None of these four companies will report second-quarter earnings until mid-July. However, Wall Street isn’t expecting big things despite the online investing boom: all four companies are expected to see a year-over-year dip in earnings per share. Hence, the lack of enthusiasm for the sector as a whole.
Are any online brokerage stocks worth taking a flier on? ETFC is the only one of the bunch trading above its 50-day average, with losses slightly less than the S&P so far this year. It’s buyable, but there are far better stocks out there, in better sectors.
Online brokers may seem like an interesting place to invest given the explosion in trading activity over the last couple months. But in reality, the niche sector has performed no better than your average retail stock of late.