About Iron Mountain
Based in Boston, Massachusetts, Iron Mountain is a leader within what is categorized as the “information management services” sector.
Whatever that means.
Upon performing some more research, this essentially means that Iron Mountain gets paid to protect its clients physical and digital bits and pieces of data, whether it is a super hush-hush and important set of contracts that need to be securely stored from outsiders or the same mission critical documents that simply need to be shredded so that no entity is able to identify and use said documents moving forward.
Iron Mountain is in the data protection business.
On the digital side, this company helps companies and other organizations safely store things like files, photos, videos, recordings and practically anything that someone or some group of people (like a business) would want to keep as much in their control as possible.
From offering physical storage spaces to data centers for digital safekeeping, these are the main ways in which Iron Mountain generates revenue.
I think in more respects than one it is safe to assume that this company’s services, particularly its digital ones, are in high demand, especially as the sheer amount of data out there has risen like the bottom to the top of a hockey stick.
I also think this fact bodes well in terms of the company’s annual revenues being, more often than not, insulated from greater overall recessionary pressures, as even when the tide does turn and a major corporation needs to cut back on its expenditures, it, for better or worse, is far more likely to cut members of its workforce than cut ties with a mission critical enterprise partner like Iron Mountain.
In briefly mentioning some of the company’s more well known enterprise clients, it is reported that the company works with MetLife, Seagate Technology, CBRE, G4S, Hallmark Cards, and many other notable major corporations.
I also generally enjoy the idea that this company has already established partnerships between itself and more major and well equipped Cloud operators, such as Google Cloud and Amazon Web Services (AWS), as management has clearly recognized that it needs to foster these types of value accretive business partnerships in order to enhance the services it can offer its clients.
I could keep going on and on about Iron Mountain until the cows come home, but I’m going to get a mo(o)ve on and tell you about this company through an utmost financial perspective.
Iron Mountain’s stock financials
With a market capitalization of $29.31 billion, a stock price of $108.56 along with supplying its shareholders with an annual dividend of $2.86 and a price-to-earnings (P/E) ratio of 140.25, something that instantly jumps of the page is the firm’s valuation, which appears to be swollen as can be, especially for a company that has been around for quite some time (founded in 1951) and isn’t some young, likely growing leaps and bounds startup anymore.
Sure, a dividend hardly hurts (but it sort of has to pay one out since it is technically a real estate investment trust, or REIT) and I presume this company has the financial wherewithal (primarily in the form of cash flow) to distribute such a dividend and even maybe steadily grow it in the years and decades to come, however, this company’s valuation is already very commanding and given where it stands in relation to the commonly held fair value benchmark of 20 (where subsequently any price-to-earnings ratio that is greater than 20 implies that the security is overvalued), let’s just say that Iron Mountain better be growing its revenues at a crazy high rate on a year-over-year (YOY) basis, and then some.
Prior to checking up on the company’s annual revenue generation in the context of its income statement, I will first direct you to the company’s balance sheet, where Iron Mountain’s executives are in charge of making the most out of $17.4 billion in terms of total assets and $17.2 billion in terms of total liabilities, cutting it a little close with one another, however, there is a little (and I really do mean a little) amount of comfort to be had when understanding just how vast the scale of this company’s physical facility and real estate footprint is, and as covered and seen in past stock analysis articles, the real estate game is a long-term, debt-filled one but it is still all the more important that Iron Mountain has the cash flows to adequately support gradually paying down its outstanding debts and associated liabilities, or else it really does run the risk of having an upside down balance sheet, or in other words, having more cumulative liabilities than assets on its books.
I’ll also say that with these numbers alone, the company doesn’t have the greatest amount of financial breathing room and has subsequently limited some very real potential growth levers in the process, which is another obvious byproduct of having too much in terms of liabilities on its books.
For instance, it can be challenging for this company to pursue strategic initiatives that could help it grow, either organically or inorganically, and I simply don’t find this appealing, as a large company like this one should candidly have some dry powder available at all times in order to roll up other smaller data protectors so as to meaningfully add to its top-line.
As it relates to the company’s income statement, Iron Mountain’s annual revenues from and throughout 2019 and 2023 have been, in summation, moving up, however, at a pretty sluggish rate, particularly when incorporating the company’s present price-to-earnings ratio. More specifically, its revenues have ranged between $4.1 billion (2020) and $5.4 billion, as reported in 2023, and while I was happy to find that COVID didn’t have much of a severe impact on the company’s revenues, this recent historic range is far too tight for the valuation this company’s stock (NYSE: IRM) currently offers.
In being a bit more forward thinking, however, I see a handful of tangible tailwinds for the foreseeable future given the heightened demand for safe storage, especially in the digital space, and while I do truly think that segment of the business is promising, there seems to still be far too much optimism priced into the stock already.
Onto the state of the company’s cash flow statement, Iron Mountain’s total cash from operations (also measured during this same time period) have sang a similar melody, growing just a little over the last five years, touting a relative high as of its latest reporting period of $1.1 billion, per its report in 2023, which is a solid chunk of its associated revenues during that same year, and if this cash flow trend continues with its revenues, this will certainly help me catch more shuteye in knowing that Iron Mountain is finding meaningful ways in which it can increase the cash it extracts from its day-to-day business operations and, more importantly, free itself up to invest in lucrative, more profitable initiatives and long-term, scaled business endeavors.
Iron Mountain’s stock fundamentals
Speaking of becoming more profitable, it would serve Iron Mountain quite well if the company worked on fattening up its current net profit margin, which at the moment is exactly what Kevin Durant told former teammate Cam Thomas he was; mini.
Specifically, according to Charles Schwab’s platform, the company’s net profit margin is a measly 3.99%, and sure, while it would be completely fair and reasonable to attribute a relatively muted net profit margin to the fact that the company is in the process of continuing to grow out its digital storage capabilities for its clients given the current state of demand, when looking briefly at other large scale storage companies, Extra Space Storage, for example, it boasts a much more appetizing net profit margin of 26.80%, leading me to believe that Iron Mountain most definitely has some rounds to bend and corners to turn as it relates to newer and more profitable avenues within its current core businesses.
Barely breaking a positive net profit for a company as long standing and seasoned as this one is just puzzling and simply disappointing.
Should you buy Iron Mountain stock?
In the greater overall demand picture, I think there’s a lot for Iron Mountain to gain in the coming years, however, I don’t feel comfortable, especially in this current market environment, with overpaying this much for long-term optimism.
With its annual revenues growing for the most part (albeit not at a phenomenal rate or anything close to it), its cash flows the same, when also including the present (nearly) levered position its balance sheet is in and its incredibly un-enticing net profit margin and the REIT-style dividend that it dishes out to its current shareholders, I really wouldn’t even be all that interested in pondering picking up shares in the company (NYSE: IRM) if it were trading at a much more reasonable, fair valuation, say, oh, I don’t know, at its actual fair valuation.
This stock, in my opinion, just has way too much coming down to do and I feel as though we are nearing the reasonable shareholder reward expectation ceiling and the fall down towards the risk side of things can be painfully long.
Iron Mountain, as of the date of this initial publication, I present your company with a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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