Trupanion Stock Forecast: According to the American Pet Products Association, pet ownership in the United States rose to a record 70% in 2020.
Indeed, a total of 90.5 million families in the U.S. have invited at least one animal friend into their home, reflecting the “societal and behavioral changes” that are unfolding throughout the country today.
Into this space comes pet insurer Trupanion, whose own revenue growth story has outstripped even that of the wider ownership trend over the last few years.
In fact, the North American pet insurance industry was worth more than $2.83 billion at the close of 2021, marking a doubling of the market in just four years. There are now more than 4.4 million insured pets in North America, with total in-force premiums of $2.84 billion topping another record metric for the burgeoning sector.
As a leading brand in the pet insurance landscape, Trupanion is perfectly poised to profit from the increasing opportunities the business has to offer. Therefore, in this article, we’ll examine the avenues of growth available to the company, and whether, in light of its recent success, the firm still represents a buy at current prices.
Budgeting for veterinary expenses is a notoriously difficult task. Trupanion, however, attempts to solve this conundrum, offering a raft of medical insurance products to help owners protect and care for their cherished pets.
Indeed, the firm, founded in 2000, has since become one of the most well-respected names in the pet insurance sector. The company offers lifelong and comprehensive coverage for when animals become sick, giving owners the freedom to choose whichever veterinarian, specialty hospital or emergency care provider they wish.
In addition to its broad range of coverage, TRUP also considers itself best-in-class when it comes to customer value as well. It sports a 71% claims payout with no payout limits, and is the only insurance provider to enable direct payment to clinicians at the time of checkout.
What Is TRUP’s Market Opportunity?
The pet insurance industry is far from mature.
In fact, the sector is massively under-penetrated right now, with just 2% of owners in the U.S. and Canada holding any kind of coverage for their pets.
This lags far behind other developed nations. The U.K., for instance, sees 25% of its pets protected by some form of veterinary insurance, while Sweden, at 40%, has the highest.
While this might seem a little alarming, it actually presents an excellent selling opportunity for Trupanion. Indeed, with so many owners still to benefit from its products, TRUP has plenty of space in which to expand.
To put this into perspective, the industry has grown at a CAGR of 23% since 2015, and was figured to be valued at $2.17 billion in 2020. In the firm’s 2021 Shareholder Letter, Darryl Rawlings, Trupanion’s founder and CEO, believes that, “based on the size of our addressable market,” anything under 15% annual growth would be a disappointment for the business.
Growth Metrics and Price Performance
Trupanion’s stock value was decimated in the latest round of market sell-offs. The firm witnessed its share price fall roughly 60% from a high of $155 in December last year, and now trades at a substantially reduced price.
However, despite this draw-down, the fundamentals of the business are still intact. Indeed, Trupanion enjoyed exceptionally strong revenue growth during the last five years, with the company increasing its sales from $188 million in 2016, to bring in a total of $699 million in 2021.
Furthermore, TRUP’s subscription business revenue increased 23% to $140 million in the first quarter 2022, while its subscription enrolled pets also spiked 21% to 736,691.
Risks and Competition
Rising inflation levels could present a severe headwind to Trupanion’s expansion efforts in the near term.
Indeed, with less money available to spend, it’s not inconceivable that consumers would cut back on supposed “non-essential” costs, such as pet insurance and other animal-related expenses. Furthermore, it’s also likely that fewer people will adopt new pets if the price of caring for them goes up.
In fact, some figures show that pet surrenders are increasing, now that the COVID pandemic is seemingly in the rear-view mirror.
That said, pet insurance might become more valuable in an inflationary environment, offering a hedge to owners against onerously expensive veterinary treatments.
While that remains to be seen, TRUP still has to contend with the threat of rival insurers stealing business out from under its nose.
As mentioned before, the pet insurance field is in its early stages at the moment, but there are significant competitors on the horizon. For example, legacy brand Nationwide offers a 5% discount to its current customers, and features add-on benefits such as wellness plans and coverage for exotic pets.
Newer players like Lemonade also make for an attractive alternative to TRUP, especially since they’re favored by younger customers seeking an online-only user experience. This could be a potentially serious issue for Trupanion further down the line, as millennial and Gen Z pet owners are some of the biggest spending consumers with respect to animal-related purchases.
Trupanion Stock Forecast
Despite not being profitable yet, TRUP’s solid revenue growth demonstrates it has little trouble generating meaningful cash flows for the business.
Moreover, its recent price woes have the stock trading at an enticing forward sales multiple of just 3.1.
Examining the company through the lens of valuation, it has a consensus analyst target of $94.57, suggesting significant upside potential from current levels.
The company also benefits from an excellent suite of economic moats, such as its deep relationships with veterinary partners, as well as its data-driven advantage from two decades-worth of experience in the sector.
Taken together, Trupanion offers potential investors a good bet on this rapidly expanding industry.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.