After experiencing a solid run in earlier months and hitting a 52-week high in late October, Iron Mountain Incorporated IRM shares have experienced a downturn, declining 10.5% in the past three months and closing at $103.21 on Wednesday on the NYSE. Over the same period, the stock has underperformed not only the Zacks REIT and Equity Trust - Other industry but also the S&P 500 composite.

The latest indications from the Federal Reserve of lesser rate cuts in the upcoming year have significantly impacted the overall market and the REIT sector, including IRM’s performance yesterday. Concerns brewing for inflation and the consequent impact on the Fed’s strategy for rates have kept investors in the REIT space skeptical.

However, with the recent decline, the question arises on whether it will be prudent to shed position in this stock, rush to add it to the portfolio or hold the stock for now. To determine how to play the stock now, it is essential to understand its potential in detail and check its concerns before making a hasty decision.

Three-Month Price Performance

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Why Is IRM Stock Moving Downward?

Although falling interest rates typically lead to reduced borrowing costs and increased investors’ demand in the real estate sector, driving stock prices higher, the environment in recent months has been different. 

Inflation concerns have already been doing the rounds of late. The latest indication from the Federal Reserve for reduction two more times in the new year, instead of the prior dot-plot’s indicated four cuts, despite announcing a 25-basis point (bps) cut yesterday, has sent the real estate market into jitters and the IRM stock down 6.25%.

Iron Mountain also has a high debt burden, so fewer rate cuts are not welcome news for the stock. As of Sept. 30, 2024, Iron Mountain’s net debt was approximately $13.31 billion. For 2024, our estimate indicates a year-over-year rise of 20% in the company’s net interest expenses. IRM's heavy debt burden hinders its ability to achieve sustainable growth in the future due to limited financial flexibility.

What Can Fuel Iron Mountain’s Growth?

Iron Mountain stands out as a leader in both physical and digital information management, trusted by more than 240,000 customers across 60 countries. Serving more than 90% of Fortune 1000 companies, the firm showcases consistent customer retention rates of approximately 98%, reinforcing its position as a reliable partner for critical information management.

Iron Mountain has significantly expanded its Total Addressable Market from $10 billion in 2015 to more than $140 billion in 2023, driven by fast-growing categories like data centers, digital solutions and Asset Lifecycle Management (“ALM”). This strategic positioning underscores the company’s ability to capture increasing market share and deliver sustained long-term growth.

Iron Mountain's data center business is a key growth driver, boasting 21 markets and 26 operational facilities globally. The company leased 124 megawatts of capacity in 2023 alone, with the potential to nearly quadruple its current operations. 

Amid enterprises’ growing reliance on technology, acceleration in digital transformation strategies and accelerated implement of artificial intelligence in businesses, stocks like Digital Realty DLR, Equinix EQIX and Iron Mountain are poised to prosper.

Iron Mountain excels in ALM, offering best-in-class data security, chain-of-custody processes and comprehensive services like asset tagging, recycling and secure data erasure and is a market leader in cloud and hyperscale decommissioning.

Estimate Revision Favoring the Stock

Analysts seem to be bullish about Iron Mountain’s prospects, as indicated by the Zacks Consensus Estimate for funds from operations (FFO) per share’s upward revision for 2024 and 2025 over the past two months. These estimates indicate significant year-over-year growth for 2024 and an 8.8% increase for 2025.

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IRM’s Valuation Looks Expensive

From a valuation perspective, Iron Mountain looks expensive at the current level despite the recent fall in stock price. IRM is trading at a forward 12-month price-to-FFO of 21.10X, which is a commonly used multiple for valuing REITs. This is still a significant premium to the industry average of 15.5X. Also, it is ahead of its one-year median of 20.46X.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

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Final Thoughts on IRM

With a stable and resilient core storage and records management business, Iron Mountain is likely to continue benefiting from healthy revenue management and volume trends in the quarters ahead. A recurring revenue business model and a well-diversified tenant base assure steady cash flows. Iron Mountain’s expansion efforts toward fast-growing businesses, like that of the data center, bode well for growth. Also, estimate revision trends support this view. 

However, given an expensive valuation, it would be prudent for investors to refrain from buying the stock. Existing shareholders may choose to remain invested, given its focus on appealing property sectors and look for a considerable pullback to buy shares.

At present, Iron Mountain carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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