Is Iron Mountain Just a Pile of Paper?

We released a short report to subscribers last week on Iron Mountain (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.

Comments

[owner99]

Poor analysis. A new product introduced in January is a state of the art digital archiving SaaS. The images stored can range from credit card receipts to video surveillance, all stored in a pay-as-you-go format.

[Kris Tuttle]

Maybe so but we don't see it much in the market or in the company results. Even wild success won't make much of a dent in their overall revenues for years to come. We have customer data that suggests they don't see Iron Mountain at all as a solution provider for digital records beyond tape storage.

[OnTheVine]

Sometimes you just can't stand on the sidelines when fools utter nonsense. This is a BEST OF BREED company that has a golden oppotunity to be number one in digital storage and is well on its way to doing that. Any other take on this company that has a stellar reputationa and solid financial track record belongs in in trash because that's where trash talk belongs. Stay long Iron Mountain !!!!

[nohypesallowed]

Interesting you mention the digital world but they are fast becoming the leader in digital archiving and backup solutions. Their core business is not going away in fact a slower economy is likely to force businesses looking to down size to move more files off site. On top of it all their assets are mission critical to private sector and government entities alike (ask the Patent/Trademark office what they would do if their vault at IRM's secret underground facility didnt exist). So lets see, core recurring base exceptionlly strong and growing at decent pace, irreplaceable assets, high barriers to entry, rapidly growing digital presence. Oh and they just reported good numbers. No wonder your short is now under water. Hope you've covered, because your analysis is exactly what your position is...short.

[Spiker]

I am a competitor of Iron Mountain here in Boston. While we are very small relative to them, virtually all of our clients are dissatified former I/M clients. They execute badly, continually lose critical tapes and records and are extremely arrogant in dealing with their clients. They are the very BEST competitor one could ask for!!!

When I told my story (via email) to Warren (as I am a significant Birkshire stockholder) he promptly sold his I/M shares....and thanked me in a very nice letter.

[User 250499]

IRM is too committed to the inherent cash flows associated with their tape/paper based business. They are not a technology company and should be valued as such. They are a dinosaur and should be valued as such.