It's often said in the investing community that past performance is no guarantee of future results.
Despite the pet health insurer Trupanion (TRUP 2.99%) shedding 58% of its 52-week high in recent months, the stock has delivered 29.6% annual total returns over the past five years. This crushed the S&P 500 index's 13.5% annual total returns posted during that time.
But Trupanion's poor recent performance raises two important questions: Is the investment thesis still intact, and is the stock a buy? Let's dig into Trupanion's fundamentals and valuation to find out.
Trupanion is continuing its robust growth
Trupanion shared solid results for the first quarter of 2022 on April 28. The company recorded $206 million in revenue for the quarter, up 33.2% from the year-ago period. How did Trupanion notch its 58th straight quarter of a 20%-plus revenue growth rate?
Trupanion's business model is that it assumes the risk of veterinary care for its customers in exchange for premiums. Growing pet ownership and inflation are pushing up memberships in pet insurance plans as consumers turn to these plans to hedge against the rising costs of pet care.
This explains why Trupanion's number of enrolled pets surged 34.3% higher year-over-year to just under 1.3 million in the first quarter. And as a testament to the stickiness of the company's business model, its average monthly retention edged three basis points higher year-over-year to 98.8% in the first quarter. This demonstrates the value that the overwhelming majority of Trupanion's customers find in its services, which is why its high top-line growth should continue moving forward.
Trupanion reported a $0.22 net loss per share in the first quarter. This was a significant improvement over the $0.31 net loss per share in the year-ago period. But since the company is still aggressively investing in growth, the best measure is arguably adjusted operating income. This measures the funds generated from Trupanion's existing portfolio of pets, explained CEO Darryl Rawlings on the company's most recent earnings call. Adjusted operating income surged 29% higher over the year-ago period to approximately $22 million in the first quarter.
Image source: Getty Images.
The balance sheet is still rock-solid
Trupanion's operating fundamentals look strong. And that's not all there is to like about the stock. The company maintained a cash and short-term investments balance of $259 million in the first quarter. Against its long-term debt of $54.3 million, this gives the company $204.7 million in net cash and short-term investments.
With a $301 average pet acquisition cost, Trupanion has the funds available to add roughly 680,000 pets to its insurance plans. This would be a 50%-plus boost to its current enrolled pet base.
A dirt-cheap valuation
Trupanion's stock also appears to be attractively valued, trading at a price-to-sales (P/S) ratio of three. And analysts are anticipating 27.2% and 21.8% sales growth in 2022 and 2023, respectively. Along with the company's results in the first quarter, this signals that Trupanion's growth prospects are holding up. This makes the stock a solid buy for growth investors with a long-term mindset.
