Why Innovative Industrial Property Stock Is Down 58% This Year

What happened

Shares of Innovative industrial properties (IIPR -0.27%), a marijuana real estate investment trust (REIT), has plunged this year, falling along with the rest of the marijuana sector. Investors have generally shied away from unprofitable growth stocks, which encapsulate the bulk of the cannabis industry. In fact, after some initial enthusiasm for marijuana stocks when Canada made recreational use legal, investors shifted their focus elsewhere and stock valuations plummeted almost everywhere in the cannabis sector.

Innovative Industrial Properties (IIPs) are profitable, but they depend on marijuana growers to rent out their grow houses, so the business would be in jeopardy if the industry collapsed.

According to data from S&P Global Market Intelligence, the stock fell 58% in the first half of the year. As you can see from the chart below, the stock has been declining for most of the year.

^SPX given by Y-Charts

So what

The IIP fell sharply in 2022 as a deal update including the acquisition of 29 new properties was not enough to impress investors. The title lost 15% during its first three sessions of the year.

Shares of the marijuana REIT stabilized at the end of the month, and in its fourth quarter report at the end of February, the company reported revenue growth of 59% to $58.9 million. Earnings per share rose from $0.91 to $1.14, and adjusted funds from operations (AFFO), which is generally considered a better measure of REIT performance than earnings per share, rose from $1.30 to $1.85.

In March, the company raised its quarterly dividend to $1.75 per share, up 17% from its fourth quarter dividend and up 33% from its quarterly dividend a year ago. .

In April, the stock fell when the company first announced a secondary offering of 1.6 million shares, then was hit by a short-seller attack later in the month. Blue Orca called IIP a “bloated cannabis bank” and said there was an “imminent risk of default” from IIP’s largest tenant. In its response, IIP accused Blue Orca of spreading misinformation and said it did not understand its business. Nonetheless, the stock fell 7% on the news.

Finally, IIP posted another round of strong results in the first quarter, with revenue up 50% to $64.5 million. Earnings per share rose from $1.05 to $1.32, and AFFOs rose from $1.47 to $2.04.

The stock fell again on the news and fell again in June.

Now what

Based on its current numbers, IIP looks like a bargain. The stock trades at a price-to-earnings ratio of just 23 and offers a dividend yield of over 6%.

Growth and revenue are a rare combination in the stock market, and the outlook for IIP continues to look bright as more states legalize pot. With more than 50% down this year, now seems like the perfect time to buy stocks.

Jeremy Bowman has no position in the stocks mentioned. The Motley Fool fills positions and recommends innovative industrial properties. The Motley Fool has a disclosure policy.

About Barbara J. Ross

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