Why Innovative Industrial Properties Stock Is Down 58% This Year

What happened

shares of Innovative industrial properties (IIPR -0.27%), a marijuana real estate investment trust (REIT), has dipped this year, falling with the rest of the marijuana sector. Investors have generally turned their backs on unprofitable growth stocks, which make up most of the cannabis industry. In fact, after initial excitement about marijuana stocks when Canada legalized recreational use, investors have turned their attention elsewhere, and stock valuations in the cannabis sector have fallen almost everywhere.

Innovative Industrial Properties (IIP) is profitable, but it depends on marijuana growers to rent out their grow homes, so the company would be at risk if the industry collapsed.

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

^SPX data from YCharts

so what

IIP fell sharply out of the gate in 2022 as an operations update that included the acquisition of 29 new properties wasn’t enough to impress investors. The stock lost 15% over the 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 increased to $1.14 from $0.91 and adjusted working capital (AFFO), which is widely considered a better measure of REITs’ performance than earnings per share, increased from 1, $30 to $1.85.

In March, the company increased its quarterly dividend to $1.75 per share, a 17% increase from the fourth-quarter dividend and a 33% increase from the year-ago quarter’s dividend.

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

Finally, IIP delivered another round of solid results in the first quarter, with revenue rising 50% to $64.5 million. Earnings per share increased to $1.32 from $1.05 and AFFO increased to $2.04 from $1.47.

The stock was still falling on the news and drifted back down in June.

What now

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

Growth and income are a rare combination in the stock market, and IIP’s prospects continue to look good as more states legalize pot. With the stock down more than 50% this year, now looks like a good time to buy some stocks.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.

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