Is Iron Mountain Just a Pile of Paper?

Mar.24.08 | About: Iron Mountain (IRM)

By Kris Tuttle

We released a short report to subscribers last week on Iron Mountain (NYSE:IRM). Our colleagues over at New Constructs identified Iron Mountain as a dangerous stock and we decided to investigate. What we discovered was that despite the outward projection of a great business, the fundamentals behind Iron Mountain didn’t support the rather high valuation the market was affording it.

While it is true that the company has a wholly recurring revenue model, the economic value add from driving around cartons of paper and storing them is lower than their cost of capital.

It also appears that higher costs and slower revenue growth due to a slow shift into digital technologies are beginning to have an impact on the business.

The company has taken on a fairly heavy debt load of $3.2B and has about $3B in long-term lease obligations on top of that. This compresses the value and opportunity for equity holders.

The stock is down sharply from $34 to $25 but we still estimate a full value on the equity to be lower still at around $19/share.

Disclosure: Research 2.0 capital has a short position in IRM.