Trupanion: Profits in Pet Policies

09/08/2020 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Trupanion (TRUP) has a neat story (and company name) that centers around the fact that pet ownership is an expensive proposition even excluding food and grooming, suggests Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.

Annual routine veterinary costs alone can average anywhere from $200 to $400 for dogs and $90 to $200 for cats. Trupanion eases the financial burden of veterinary care by offering insurance policies for dogs and cats.

The company offers policies in the U.S., Canada and Puerto Rico (it’s one of the only pet insurers that will pay the vet directly, rather than making pet owners file a claim after paying out-of-pocket).

The firm generates revenue primarily from subscription fees for its medical insurance (fees are paid at the beginning of each subscription period, automatically renewing each month).

It also makes money by writing policies on behalf of third parties, as well as companies that offer pet insurance as a benefit to their employees.

The stock is strong today mainly because Trupanion posted a solid Q2, thanks to a stronger-than-anticipated performance in its subscription business, with total revenue growth of 28% and 744,000 total pet enrollments in the quarter.

Subscription revenue was $92.5 million (+20%), while the monthly retention rate of 99% is hard to beat. For Q3, the firm expects subscription revenue between $98 and $99 million (up around 19% at the midpoint), predicting full-year growth of $384 million (+20%). Analysts, meanwhile, anticipate the top line will grow between 25% and 27% in the next four quarters.

Most pet owners won’t sign up, but given the size of the market (67% of households have a pet), all Trupanion needs is a small slice of the pie (it estimates it has just 1% of the addressable market) to post rapid and reliable growth for years to come.

Technically, TRUP topped around $47 back in mid 2018 and spent the next two-ish years correcting and consolidating in a huge range ($21 on the low end to $38 on the high end).

But the weak hands were finally worn out, and now the roof has blown clean off — TRUP lifted above resistance in June, nabbed new all-time highs in July and went bananas after earnings in early August.

The latest pop came after an index addition announcement (to the S&P 600 SmallCap) that took place on September 1. We advise aiming for dips as these index-induced pops often fade a bit after they take place.

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