Iron Mountain (IRM, Financial) stores records, primarily paper documents and data backup media, and provides information management services. The company’s information management services are divided into three main service categories: records management services, data protection and recovery services; and information destruction services. The company provides its services to commercial, legal, banking, health care, accounting, insurance, entertainment and government organizations.
In this article, let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment.
Diversified Revenue Base
The company serves more than 156,000 clients across different industries and geographical locations. The customer base is diversified by industry, with commercial, legal, banking, health care, accounting, financial, entertainment and government organizations. It is important to note that almost 95% of Fortune 1000 companies are its clients. Also, no single customer has accounted for more than 2% of its revenues over the last three years.
Aggressive Acquisition Strategy
Past year growth was largely the result of acquisitions that helped to create a large base of U.S. information protection and storage service operations. In 2007, two significant acquisitions were ArchivesOne Inc. and RMS Services; and the large acquisition of Stratify Inc. Iron Mountain has not only gained new customers from these acquisitions but has also been able to expand its operations in international regions such as Greece, China, Hong Kong, Singapore, Switzerland and Turkey. In order to expand its presence in the emerging markets, the company recently entered into fast-growing economies like Colombia and Brazil through acquisitions.
It has entered the Colombian market through a US$54mn acquisition; it has acquired Secure Data Solutions Colombia and G4S Document Delivery, G4S' Colombian records management and data protection business. Also, it has purchased Archivum, a family-owned records storage firm based in Brazil.
Analyst Recommendation
The firm is currently Zacks Rank # 3–Hold, and it also has a longer-term recommendation of “Neutral”. A Hold rating indicates that the stock, over the next 1 to 3 months, will perform at an annualized rate of 10.56%, very similar to the S&P 500. For investors looking for a better Zacks Rank, Odyssey Marine Exploration Inc. (OMEX, Financial), Rentrak Corporation (RENT, Financial) and SouFun Holdings Ltd. (SFUN, Financial) could be better options.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 53.4x, trading at a premium compared to the industry mean. Earnings per share (EPS) has increased by 66.67% in the most recent quarter compared to the same quarter a year ago, $0.25 per share for the fourth quarter. In the next graph we include the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance was highly volatile in the last year.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased from the same quarter one year prior. This is a clear sign of weakness within the company.
Let´s compare the current ratio with the peer group in the next table:
| Ticker | Company Name | ROE (%) |
| IRM | Iron Mountain | 9.29 |
| OMEX | Odyssey Marine Exploration | -61.99 |
| RENT | Rentrak Corporation | -47.14 |
| SFUN | SouFun Holdings | 81.23 |
| CRD.B | Crawford & Company | 25.51 |
| EXAM | ExamWorks Group, Inc. | -3.74 |
| VVI | Viad Corporation | 6.2 |
The company has a current ratio of 9.29% which is higher than the one registered by Odyssey Marine Exploration, Rentrak Corporation, ExamWorks Group Inc. (EXAM, Financial) and Viad Corporation (VVI, Financial). But for investors looking for a higher ROE, Crawford & Company (CRD.B, Financial) and SouFun Holdings could be better options.
Final Comment
Key growth drivers include increasing revenues from existing customers, new clients, new products and services and acquisitions. In this matter, we think that strategic acquisitions in emerging markets like Brazil, Russia, China and India, which will boost its international revenues, going forward.
I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in the fourth quarter of 2013. Gurus like John Keeley (Trades, Portfolio) and RS Investment Management (Trades, Portfolio) have taken long positions on it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
