Why Trupanion Has a Huge Growth Opportunity in Front of It

As a pet insurance company, Trupanion (TRUP -5.22%) offers one of the more unique ways to get exposure to pet stocks.

The company has a huge addressable market as only a small percentage of pet owners currently have pet insurance. In this episode of "Beat and Raise" recorded on Nov. 4, Fool contributors Vicki Hutchison and Jason Hall discuss Trupanion's third-quarter earnings report and how the company can capture a larger share of the market. 

Vicki Hutchison: Now, we have the actual roller coaster stock chart, which is Trupanion. Very much sine wave looking and the stock was up almost 10 percent today, so investors like what they heard. For folks who don't know, Trupanion is health insurance for your pet. It's a much bigger thing in other countries than it is here in the US, but when my daughter was doing her budgeting exercise in high school and they had said, you'll get this amount of money and you've included in there that you want to have a pet, you need to put in some money for pet insurance because you never know when your pet is going to have a problem that doesn't fit into your normal monthly cash flow. That's what Trupanion is really about, is letting folks to be able to take care of their pets if they end up with one of the unlucky ones that cost them a bundle.

Jason Hall: Nothing more painful than having to make a financial decision over something like that.

Vicki Hutchison: Right. The founder of this company had that happen to him as a child and he didn't want it to happen to any other children if he could have a say. Revenue was up 40 percent. Earnings per share, they're still not making money and actually 10 cents out of that earning-per-share loss was stock options. That doesn't make me super happy. I've seen it in previous quarters, but this company is really early in its growth trajectory. They're about a four-billion dollar company, they've got a huge market. Right now they have more than a million pets enrolled, but that's one percent of the US market and two percent of the Canadian market. Other countries have numbers of eight percent and upward. I think Sweden has some huge double-digit percentage of their pets that are insured. They have a reasonable amount of cash. They are cash flow positive and this is one I've owned for a while and you put it to the side and hold on and I expect that it will be better down the road.

Jason Hall: There are some key things here to highlight again before we move on. It's massive opportunities to expand this market, as you said. This is just a timely exposure to the market. Losing money on a GAAP basis and a big chunk of that is because of share issuance, equity grants for employees, and management, that sort of thing, but on a cash flow basis, the company is generating cash so it can live within its means. For the shareholders through that dilution, future cash flows, future earnings, we get a smaller and smaller portion, so that's why you have to monitor it. Is it worth the price? Only time will tell, but that's normal for this kind of company, right?

Vicki Hutchison: Yeah. They do have a long history of knowing how expensive it is to insure [inaudible] versus the domestic house cats. They are priced differently and they have a lot of history and so they do pretty good with their numbers there,