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Here's Why Trupanion Stock Is Soaring Today

By Matthew Frankel, CFP® – Aug 26, 2020 at 11:24AM

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It's not earnings that has this pet insurer on the rise.

What happened

The stock market was having a so-so day on Tuesday, with most major indexes hovering near the flatline throughout most of the morning. However, pet insurance provider Trupanion (TRUP -2.24%) was a major exception -- as of 11 a.m. EDT, the stock was higher by more than 12%.

So what

Today's move appears to be driven by Trupanion's addition to the S&P SmallCap 600 index, where it will be replacing Ring Energy (REI -1.70%).

Family playing with dog.

Image source: Getty Images.

Now, being added to a stock market index may not have any impact on the fundamentals of the business itself, but it could certainly create upward momentum in the stock. For one thing, inclusion in a benchmark index is a good indicator that a company is growing, and it could land on more investors' radar. And perhaps more significantly, this means that index funds that track the S&P SmallCap 600 will have to buy shares of Trupanion to make sure their funds continue to be representative of the index.

There were a few other notable index moves today as well. Lithia Motors (LAD -0.51%) is moving up from the S&P SmallCap 600 to the S&P MidCap 400, and BankUnited (BKU 0.26%) will be taking its place in the small-cap group. Lithia's stock isn't reacting to the news (not surprising, since it is moving from one index to another, as opposed to being a completely new addition), while BankUnited is higher by 6% on the news. And to be thorough, Ring Energy is down more than 10% on the news that it will be replaced in the small-cap index by Trupanion.

Now what

After today's move, Trupanion is now up by 72% in 2020 and is more than 150% higher than it was a year ago. The company has exhibited strong revenue growth and impressive customer retention rates, and still has a huge addressable market opportunity. So although it has yet to achieve steady profitability, there could be more room to climb for this innovative insurance company.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Trupanion. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Trupanion Stock Quote
$59.43 (-2.24%) $-1.36
Lithia Motors, Inc. Stock Quote
Lithia Motors, Inc.
$214.55 (-0.51%) $-1.10
BankUnited, Inc. Stock Quote
BankUnited, Inc.
$34.17 (0.26%) $0.09
Ring Energy, Inc. Stock Quote
Ring Energy, Inc.
$2.32 (-1.70%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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