Buy and save this unstoppable growth stock for the next decade
gMedical care is expensive regardless of the patient’s species. People need health insurance for themselves, so why not for Fido?
And this is the pitch for Trupanion (NASDAQ: TRUP), a health insurance company designed especially for pets. For growth investors looking for a stock to hold onto throughout its soaring ascent, Trupanion has a lot to offer. Let’s analyze why.
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This stock goes places
The key factor in Trupanion’s future prospects is that its business model is highly reproducible. As with health insurance for humans, subscribers pay a monthly fee in exchange for coverage that reduces the cost of veterinary care. After providing care, the veterinarians then invoice the insurer for reimbursement of their costs. When all goes according to plan, the company makes money betting that, on average, pets will be happier and healthier than they will be sick or injured.
In more quantitative terms, 98.7% of registered pets remain registered each month, and the company estimates that it generates $ 63.30 in revenue and $ 8.29 in cash per month per animal. So, every additional subscriber means a significant amount of revenue down the line – and as of the Q3 earnings report, the total number of pets enrolled has increased by 37% from Q3 of 2020.
Over the past three years, quarterly revenue has grown by almost 120%, and with the rapid and continued growth in the number of subscribers, it’s easy to see how the good times could continue. This is especially true when you consider that the US pet insurance market is still largely untapped, with management citing research suggesting a penetration rate of just 1%.
In other words, there is smoother sailing ahead, since there are no strong competitors on the horizon. And, with the online pet goods company soft announcing earlier this month that it would partner with Trupanion to offer pet insurance to its customers. It’s yet another engine of growth on the radar for the next year and beyond.
There aren’t many headwinds to fear either
In line with the success of its continued expansion into the pet insurance market, Trupanion does not have many issues that could give investors pause.
Her total spending as a percentage of quarterly income does not increase significantly over time and she is currently debt free. While showing consistent earnings remains a challenge, the company had free cash flow (FCF) in 2019 and 2020 anyway. While not profitable, its net margin is less. of 5% to be positive, so it is quite possible for it to keep growing rapidly and worry about increasing its efficiency once the market starts to get crowded.
The greatest risk to shareholders may be dilution. Last year, Trupanion raised $ 192.3 million by issuing new shares, which was far more than it had issued in the previous five years. Still, no new shares were issued in 2021, and it may not be anytime soon. With over $ 221.5 million in the bank, there is still a long way to go in figuring out how to provide cost-effective coverage.
In a nutshell, this is a solid business that is well within the window of opportunity for newcomers to invest. As an added bonus, most investors probably don’t have direct exposure to the pet health insurance market in their portfolios, so Trupanion could also be seen as a great way to diversify. Ultimately, buying this stock is a bet that people will continue to love and care for their pets. For me, it’s a slam dunk.
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Alex Carchidi does not have a position in any of the stocks mentioned. The Motley Fool owns and recommends Chewy, Inc. and Trupanion. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.