Iron Mountain (NYSE: IRM) could be the ultimate contrarian investment in today’s stock market.
To explain, Iron Mountain’s business is the storage and destruction of paper records. Conventional wisdom is that paper records are obsolete in today’s world.
Iron Mountain’s financial numbers, however, cast doubt on that belief. For example, Iron Mountain reported making a quarterly gross profit of $624.24 million on quarterly revenues of $1.08 billion on 31 December 2019. In addition, Iron Mountain’s revenues grew at a rate of 1.71% in the quarter ending on New Year’s Eve 2019.
How Much Money is Iron Mountain Making?
Iron Mountain reported a quarterly net operating income of $206.07 million and a quarterly common net income of $37.7 million on 31 December 2019.
Moreover, Iron Mountain reported an ending cash flow of $6.78 million and an operating cash flow of $318.51 million for the last quarter. Thus, Iron Mountain’s business generates some cash.
Conversely, Iron Mountain keeps little of that cash. For instance, Iron Mountain reported just $193.56 million in cash and short-term investments on 31 December 2019.
What Value Does Iron Mountain Have?
However, I think Iron Mountain looks like a value investment because its shares traded at $31.99 on 27 February 2020. Meanwhile, Stockrow estimates Iron Mountain had $13.817 billion in total assets on 31 December 2019.
Iron Mountain owns some impressive assets including the Underground, a massive underground storage facility in a former limestone mine in Butler County Pennsylvania. The facilities inside the Underground can digitize any of the media stored there and upload it to the web. The items stored at the Underground include the Universal Music collection and Getty Images photographs.
Iron Mountain also operates climate controlled storage facilities for documents and separate vault storage for film and magnetic tapes. Currently, Iron Mountain operates 15 storage centers on two continents with 3.5 million gross square feet of storage.
Iron Mountain Cashes in on Data Centers
Beyond the storage of physical media, Iron Mountain operates data centers including a subterranean data center at the Underground. In addition, Iron Mountain can build data centers onsite and make data center facilities available to companies on a wholesale basis.
The Iron Mountain Hyperscale Data Centers are designed to support the cloud. Iron Mountain’s Strategic Data Centers serve specific geographic markets. Interestingly, Iron Mountain claims its data centers are powered by 100% renewable energy.
Finally, Iron Mountain helps companies get rid of paper documents by scanning and destroying documents. Iron Mountain can destroy paper documents through shredding and securely dispose of computer drives, magnetic tapes, etc.
Iron Mountain Makes Money from the Paper Fallacy
Consequently, Iron Mountain offers services for which demand is growing. For instance, Iron Mountain destroys paper documents at a time when man organizations are moving away from paper. In addition, Iron Mountain digitizes information and stores.
Finally, Iron Mountain cashes in on what I love to call the paper fallacy. The paper fallacy is the belief that paper records permanent, reliable, and tamper proof. Anybody, like me, who has worked as a file clerk knows the paper fallacy is nonsense.
However, the paper fallacy is widely believed and supported by laws that require physical backups for electronic data. Hence, Iron Mountain makes money from popular misconceptions.
The Value Case for Iron Mountain
The value investment case for Iron Mountain is simple. Iron Mountain is an obscure and boring company that provides a widely used service that few people are aware.
Furthermore, Iron Mountain Inc. (NYSE: IRM) stock is cheap, but Iron Mountain owns a lot of valuable. In particular, I think Iron Mountain’s underground storage facilities could be worth several billion dollars.
Plus, I suspect the cloud could increase the value of Iron Mountain’s underground storage in two ways. First, the internet creates a huge digital market for much of the media stored in Iron Mountain’s facilities. Songs they sell through the Apple Store, for example.
Second, Iron Mountain’s limestone caverns are the perfect locations for data centers. Thus, Iron Mountain could make lots of money by renting those caverns out as locations for other companies’ data centers.
Therefore, I consider Iron Mountain a 21st Century value investment and an undervalued stock.
Is Iron Mountain a good Dividend Stock?
I consider Iron Mountain (NYSE: IRM) a great dividend stock. Notably, Iron Mountain will pay a 61.85₵ quarterly dividend on 13 March 2020.
Moreover, Iron Mountain’s dividend grew by 0.85₵ in 2019. To explain, Iron Mountain paid a 61.1₵ dividend on 13 September 2019 and a 61.85₵ dividend on 13 December 2019.
Overall, Dividend.com estimates Iron Mountain offered a 7.49% dividend yield, an annualized payout of $2.47, and 10 years of dividend growth on 27 February 2020. Thus, Iron Mountain is a good dividend stock.
If you are looking for a cheap dividend and value stock with a lot of value potential Iron Mountain could be a good choice. I think Iron Mountain could experience dramatic growth because of the cloud, and new media such as streaming video.