What happened

Real estate investment trust (REIT) Stag Industrial (STAG -0.17%) was an early winner during the pandemic. The stock nearly doubled off of its early-2020 low as a shift to e-commerce led to demand for more warehouse space.

But the "great reopening" post-pandemic stalled the momentum, and concerns about an economic slowdown weighed heavily on the shares in 2022. Shares of Stag Industrial lost 32.6% for the year, according to data provided by S&P Global Market Intelligence, giving back most of the gains since the start of 2020.

So what

Stag is a REIT focused on industrial properties, with a portfolio of more than 560 buildings with 111.6 million square feet of usable space in 41 states. Much of its portfolio is warehouse space, and when retailers rushed to build out their e-commerce capabilities in the early days of the pandemic, Stag saw demand for its properties surge higher.

The company generated net income of $202 million in 2020 and $192 million in 2021, up from $92.9 million in 2018.

In 2022, the focus shifted to questions about how long these good times could be sustained. The Federal Reserve's effort to fight inflation by raising rates sent shock waves through the markets. The Fed's playbook to cool inflation involves cooling the economy, which carries the risk of sending the economy into a recession.

Should a slowdown happen, companies would likely need less warehouse space -- or at the very least, the expansion we've seen in recent years could halt. With Stag trading at multiples unseen in recent memory coming into this year, investors decided to head for the exits.

Now what

By those same valuation metrics, Stag is not cheap today. The company trades at about 9.4 times sales, which is within range of where it was at the start of 2020. But this is a much larger, better-diversified company now than it was just a few years ago. Stag put much of that cash that was coming in to use buying new properties.

It boasts a blue chip roster of clients including Amazon, FedEx, and DHL Supply Chain, but no customer is responsible for more than 5% of its total rents, and its top 20 tenants combined make up less than 20% of the business.

We're still in an uncertain economy, and some of those big clients might need less warehouse space in 2023 than they did at the end of 2022. Investors should be warned that there could be more volatility up ahead for Stag shares. But the long-term demand for warehouse space is substantial, and Stag is well positioned to fulfill that need over time.

For investors who are willing to wait, and get paid a 4.3% annual dividend yield while they do, it is an intriguing time to look at Stag Industrial's shares.