Company Profile: Trupanion, Inc.


If you follow The Capital Pink on Instagram (@thecapitalpink), you will see that I am profiling a pet related company this week in honour of Flynn, the bichon frise, that won the recent Westminster Kennel Club dog show. All things pets are a booming business. Our house currently owns two guinea pigs, but it sounds like a dog is in our near future. The guinea pigs are cheap and easy to own and we spend about $40 a month on food and wood shavings for their cage. Nice and inexpensive but I suspect the acquisition of a dog will see us spending more time and money at pet supply stores. Judging from the multitude of products and people shopping at the pet stores we go to on occasion, there are a lot of people crazy about their pets. They are willing to part with a sizeable chunk of disposable income to feed, water and care for them.

While I could have chosen to profile a large retailer like PetSmart, Inc. to examine this category, I decided to pick something smaller and less retail. So, I have chosen Trupanion, Inc. to profile this week. It is a pet insurance company that started about 18 years ago in Vancouver, British Columbia. It went public on the NYSE on July 18, 2014. I am interested to see what the trend is in this area and to also do some personal research given a dog is likely in our near future.

·      As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own Trupanion, Inc. stock and am not affiliated with them in any manner.    

What is Trupanion, Inc. (Trupanion)?

Trupanion provides medical insurance to dogs and cats via a subscription service model in Canada, the United States and Puerto Rico. It distinguishes itself from “pet insurance” which, not having a cat or a dog, I gather is a broken model. Traditional pet insurance requires the pet owner to wait for reimbursement, may require the owner to have less quality of care for a cheaper monthly premium, pay a large deductible for the same ailment multiple times over or provide payouts based on certain rates and not on actually what was done for your pet. Trupanion is moving away from this model to a subscription model that covers the actual cost of what your pet had done and aims to take the mystery out of the pet insurance industry in this way. People want certainty of what they are going to have to pay and what is covered so I would suspect this is a welcome entrant to the market.

Clearly, veterinary bills are very expensive! In the Trupanion Shareholder letter online, it discusses its 2016 Financial Performance and indicates that in 2016, total revenue was $188.2 million and  it spent $133.3 million paying member veterinary invoices. That is a huge chunk of revenue. The vast majority of pet owners can’t afford to pay large vet bills which can reach up to $40,000 so an average monthly premium of $50 through Trupanion is often the only way to budget for such a large expense. I was interested to learn that Trupanion has over 1.2 million price categories for premiums such as “Golden Retrievers”, “dog residing in Santa Barbara” or “cats enrolling at the age of six” as examples. Its main model, unlike perhaps traditional pet insurance, is to accurately understand the costs of veterinarian care for the average pet in each of the categories and then add a 30% margin. 

Other interesting points about Trupanion’s business:

·      Pet owners are spending more on their pets each year ($63 billion in the US up from $58 billion in 2014);

·      Pet insurance is largely an untapped market in North America. This is largely due to the fact that the concept is not as tested here as say it is in the UK.  A “high-quality, high value” option for consumers to pick and vets to recommend with respect to pet insurance has by and large been lacking;

·      Building trust with veterinary hospitals is crucial as they can be a key link in recommending Trupanion;

·      A pet owner that has insurance spends more on vet services over the pet’s life because they bring in a sick pet sooner – this is a positive to the veterinarians both financially and ethically which gets the vets onside in recommending Trupanion;

·      Trupanion has direct billing (no annoying reimbursement at a later date) in many hospitals and is continuing to work on installing direct pay in more vet centres; and

·      Growth consists of: 1. Getting new vet centres and hospitals to recommend and get on board with Trupanion 2. Having the same vet hospitals recommend Trupanion time and time again 3. Advertising Trupanion direct to consumers 4. Referrals from one pet owner to another and 5. Other revenue from, for example, corporate employee benefit plans.  

If you are at all interested in this company or sector, I would highly recommend reading the CEO’s Shareholder letters as they are very informative and amusing at times. I enjoyed his down to earth and plain language writing style that really gives you a sense of the company.

What is Trupanion’s stock doing?

As at February 20, 2018, the numbers from our basic stock evaluation tools are as follows:

Share price: $28.42 USD

One share of Trupanion would cost you $28.42 USD.  The price over the past 52 weeks has ranged from $13.88 to $36.88 USD.

Price to Earnings (P/E): 1,428.57 (Consensus Forward P/E)

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. As Trupanion has negative earnings right now, there is no current P/E metric. However, the consensus forward P/E (based on what the earnings are forecasted to be) is a massively high number! This is definitely a stock that you will look to see major growth in the future if you did decide to research and buy it.  

Dividend Yield: --

Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Trupanion does not pay a dividend at this time.

Earnings per Share (EPS): -0.05

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Trupanion has negative earnings at this point so the EPS is in a negative position. Indeed, it has been in a negative position since 2011.   

Revenue: $243 Million TTM

Increasing revenue is a good sign that the company is growing. Trupanion’s revenue has grown from $37 million in 2011 to now $243 million with steady growth in between.

Return on Equity (ROE): -3.23%

ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Trupanion is in a negative position on this metric as well.

Market Capitalization: $856.2276 Million

Trupanion would be considered a small cap stock.  Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle.

Net Profit Margin: -0.62% TTM (Trailing Twelve Months)

This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.

Cash Flow per Share: 0.25 (end of 2017)

Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. 

This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash.   

Price to Sales (P/S): 3.45

This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 2.25 so Trupanion is slightly higher than the index.

Price to Book (P/B): 18.39

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. The index is 3.23 so Trupanion is significantly higher.

Price to Cash Flow (P/CF): 84.92

Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 14.70 so Trupanion is much higher than the index on this metric.   

This completes a basic evaluation of Trupanion. As always, there are tons of articles and discussions online about this stock and all stocks, so they are also a good place to look at for further consideration. Trupanion is attempting to make a lasting mark in the pet medical insurance industry. Its approach is in keeping with what consumers now want with most products and services – ease of use, transparency and quality. Long gone are the days of insurance companies keeping everyone in the dark about what was covered, when and how. The market for this product is almost entirely untapped so the future looks bright if Trupanion can execute on its growth strategy. At this point, the measurements above vary greatly from the index and given it is such a growth stock, it is a bit difficult to analyze it on the above metrics alone. 


***Top photo courtesy of Jonatan Pie at Unsplash