What happened

Shares of Trupanion (NASDAQ:TRUP) soared 31.8% in October, according to data from S&P Global Market Intelligence. The pet insurance provider got upgrades from multiple stock analysts in the month, which was likely the main reason for the stock jump. Building on this momentum, Trupanion just released its third-quarter earnings results, beating expectations for the period, which has sent its stock even higher in November.

So what

Not much news came from Trupanion itself in October, but Wall Street put out some bullish notes on the company. On Oct. 6, Piper Sandler put Trupanion as overweight (which means buy) with a price target of $110. On Oct. 18, Bank of America rated Trupanion stock as a buy, with a price target of $112. At the time, Trupanion's stock was well below these levels, so it is likely that investors decided to buy after these analyst upgrades. Currently, Trupanion trades at approximately $115 a share.

A person sitting with a dog on a window sill.

Image source: Getty Images.

The company met these upgraded expectations with the earnings report it put out on Nov. 3. Revenue was $181.7 million in the third quarter, up 40% year over year, with adjusted loss per share coming in at $0.04. These numbers beat the consensus estimates coming into the release, which is why Trupanion stock is up over 7% the day following the results.

Trupanion is seeing strong growth in the number of pet owners joining its platform. Total pets enrolled with Trupanion crossed 1.1 million in Q3, up 37% year over year. Subscription enrolled pets, which bring in highly predictable revenue for Trupanion, were at 676,000, making up the majority of the pets with Trupanion. Since most pet owners will stick around for many years with the insurer, growth in pets enrolled is a great predictor of Trupanion's future revenue.

Now what

With a current market cap of $4.2 billion, Trupanion trades at a premium valuation. With only $97.4 million in trailing-12-month gross profit, the stock trades at a price-to-gross profit ratio of 43, which is much higher than the market average. Now, with its high growth and reliable business model, Trupanion could perform fine for shareholders going forward. But anyone thinking of investing in Trupanion needs to be aware of its premium valuation before putting their hard-earned money to work. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.