IRM has gained over $5 per share in the past 2 trading days. This is because IRM has been added to the S&P 500 Stock Index and holders of the index, therefore, must purchase shares. Technical and fundamental analyses have NOTHING to do with the stock's pop. The stock has an outrageoulsly high P/E value IMO....somewhat of of speculative play? Your thoughts please.
IRM is a leader in its business, no doubt, but a growth company no more. They are not the leader in digital document storage, and their growth has been via a leveraged acquisition model that is certainly over for now. Add to that a generational crimp on corporate spending and the growth story is finished.
1. 79 Quarters of consecutive storage revenue growth 2. 8% to 13% compound annual revenue growth projected for next 5 years, with even higher growth rates historically 3. 3 of the top 5 mutual fund owners have "GROWTH" in their name 4. There's more, but I don't need to go on
I'd bet the managers that run "Growth Funds" have pretty good ideas of what a growth company looks like. Sure they have a leveraged acquisition model, but they are still very much a growth company. Better yet, I hope they have slowed acquisitions, as I'd rather have greather EPS growth than top line growth anyway. I would be happy to suffer 8 to 10% revenue growth, while OIBDA and EPS grow at much higher rates!
No... this is an index play. Stocks typically go up when added to a major index as all the index funds have to cover them, too. Plus, daytraders and speculators get all over it for awhile. Could stay up for awhile, (some index plays drop the next day after being added to the index) but don't be surprised if it drifts back down almost to where it was before it joined the S & P 500. Betting on an Obama play may stave off some of the drop, but that would apply to many stocks. And don't forget that some really glum earnings reports will start popping out next week which always cause a knee-jerk reaction. Still a bumpy road ahead for the near-term.
I'm inclined to think that regardless of IRM's addition to the S&P 500, the stock would have gone up over the last 2 trading days, certainly not $5+ though. IRM has always had a high P/E and it's current P/E and forward P/E is actually significantly lower than it has been historically. Experience has taught me that when a company trades at a high P/E for over a decade as IRM has, there is typically a good reason. In IRM's case, shareholders are willing to pay a premium for a global leader whose sales are more than 5 times their nearest competitor and for a company that has an annuity based revenue stream that grows regardless of the macro economic environment. Remember too, IRM is still a growth company, and the minute leadership decides to ratchet down acquisitions and spending and truly capitalize on their managed assets, EPS and profitablity will reach levels that justify an even higher P/E.