Pets are a family and as such we care about their health and happiness. However, it is difficult for pet owners to accurately budget for their pets’ healthcare costs when they become ill or injured. Trupanion (NASDAQ:TRUP), a leading provider of pet health insurance, helps pet owners take the guesswork out of pet health care costs. As the company continues to grow rapidly, investors have three main reasons to take a closer look.
Pet insurance is still in its infancy
When Darryl Rawlings was 14, his family couldn’t afford surgery for his dog, Mitzi. Inspired by this experience, Rawlings founded Trupanion in 2000 with a mission to make the best possible medical care more affordable and accessible for pet owners.
Pet insurance has grown in popularity over the past two decades, but owners of less than 3% of North America’s 180 million pet dogs and cats have signed up for insurance. The US and Canada lag behind some European counterparts such as the UK and Sweden, where 25% and 40% of pets are insured respectively. Considering that 120 million pets visit the vet in North America every year, the potential market opportunity for Trupanion can be very compelling if the adoption of pet insurance in North America can achieve even a fraction of what we’re seeing in Europe.
Trupanion has built a strong moat with two decades of learning
Insurance companies are successful in part because they are able to predict payouts to their customers with some degree of accuracy. As an early entrant to the industry, Trupanion has a natural advantage over its competition due to its two decades of data collection on pet breeds, pet care costs, and pet owners. Insights from this data help Trupanion more accurately assess the risk of each policy and price their policies to avoid losing money.
With its growing understanding of pet care, the company also offers its customers more and more value. Trupanion believes it offers the broadest coverage in the industry with comprehensive lifetime pet coverage that includes hereditary and congenital diseases with no payout limits. More and more customers are choosing Trupanion, staying with their insurance plans and paying more.
|Total Pets Registered (thousands)||344||423||521||647||863||1.104|
|Average monthly retention||98.60%||98.63%||98.60%||98.58%||98.71%||–|
|Monthly average revenue per animal||$47.82||$52.07||$54.34||$57.52||$60.37||–|
The company has developed strong relationships with veterinarians whose credibility means customers are more likely to sign up when veterinarians recommend Trupanion’s services. Trupanion has dedicated sales associates who work with veterinarians and provide those veterinarians with a patented software platform that streamlines the financial aspects of animal health for veterinarians and owners alike. The software can send direct insurance payments to veterinary offices right at the customer’s check-out, eliminating the need for additional paperwork and saving everyone’s time and hassle. It also provides veterinarians with all relevant information about the pet in question and their previous treatments, claims and pre-existing conditions. Vets and owners can review different treatment options and make an informed decision on the next course of action. These advantages have helped Trupanion build a strong competitive advantage.
Trupanion translated its early lead and large market opportunity into rapid revenue growth. At the end of the third quarter, Trupanion reached a total of 1.1 million registered pets, up 37% year-on-year. In the first nine months of 2021, the company grew revenue by 40% year over year to reach $504.6 million. Trupanion has now grown its revenue by more than 20% for 56 consecutive quarters.
Long-term vision and efficient implementation for continued success
Trupanion is a leader in its industry but faces increasing competition. There are established competitors such as Nationwide insurance and all statesemerging competitors such as lemonadeand specialist smaller pet insurance providers like Healthy Paws.
Trupanion must constantly reinvent its business and follow a clearly defined long-term strategy to fend off the competition. Founder and CEO Rawlings has set out a five-year plan that aims to reach $1.5 billion in annual sales by 2025. To achieve this goal, Trupanion plans to expand its partnerships, enter international markets and develop additional types of pet insurance that are better suited to different segments of customers and also introduce new product categories such as pet food and GPS devices for pet tracking one. The company recently partnered with the popular online pet food and services company Tough, allowing Chewy’s 20 million customers to purchase Trupanion’s insurance plans on Chewy’s website. Although the two companies have not disclosed the details of the partnership, it gives Trupanion access to a very large group of potential customers.
Investors should keep in mind that Trupanion isn’t profitable just yet, as the company continues to invest in technology, sales, and marketing to fuel growth. In the first nine months of 2021, Trupanion spent 20.4% of its revenue on operating expenses, compared to 16.7% in the same period last year. As a result, its net loss margin deteriorated to about 6% from less than 1%, and the company burned $6.2 million in cash after posting $13.2 million in free cash flow in the year-ago period. While losses are fairly small right now, investors should keep a close eye on Trupanion’s operating expenses and move towards profitability.
The current pullback may be an opportunity
Much like many high-flying growth stocks, Trupanion’s shares have taken a hit amid the larger market sell-off, falling about 50% from their November 2021 highs. Despite this, the shares are trading at a price-to-sales multiple of around 5.6, still at the high end of its previous trading range. However, Trupanion’s track record of growth, its position in the industry, and the long runway ahead likely justify that premium. Now could be a good time for long-term investors to add this strong company to their portfolios.
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