When done right, growth investing can be very profitable. High-quality growth companies will execute on their plans and drive revenue and the stock price higher over time.
The pet health insurer Trupanion (TRUP 5.10%) has done that for the last eight years and counting. This explains how a $10,000 investment in the stock when it went public in 2014 would now be worth just shy of $53,000 today -- far more than the $22,000 that the same investment over the same time would have yielded from the Nasdaq Composite.
And it doesn't appear as if Trupanion will be running out of steam anytime soon. Let's explore the company's fundamentals and valuation.
Making the right moves in a growing industry
Trupanion's revenue vaulted 28.7% year over year to $233.8 million for the third quarter, ended Sept. 30. This was the 60th quarter in a row that the company logged at least 20% revenue growth. How did the pet insurer accomplish this impressive feat?
Total pets enrolled soared 30.4% from the year-ago period to over 1.4 million as of Sept. 30. Pets are increasingly becoming accepted as family members, so this shouldn't come as a shock. The company's 98.7% average monthly retention rate during the quarter demonstrates that its products are highly valued by customers.
While the pet insurer took a net loss per share of $0.32 in the third quarter, this isn't the most reliable measure, in my opinion. That's because Trupanion is still heavily investing in growth, which is skewing earnings lower. Adjusted operating income measures the income that was produced from the company's existing portfolio of pets. This metric rose 6% year over year to $22 million for the quarter.
Trupanion isn't getting complacent, either. It recently partnered with Aflac (AFL 2.78%) to sell pet insurance in Japan, which could fuel growth for the company. This is because Aflac's network of tens of millions of customers in Japan could open up a large, new market to Trupanion as soon as the second half of 2023.
Image source: Getty Images.
The company has the liquidity to finance its ambitions
Trupanion is a quality business with solid potential, and it should have no difficulty in funding future projects. That's because it has a balance of nearly $130 million in net cash and short-term investments as of Sept. 30. With average pet acquisition costs of $291 this year, this is enough capital to grow its existing pet base by more than 400,000. And it has access to $75 million more in debt until September 2023 if it chooses.
A fundamentally strong stock at a deep discount
Shares of Trupanion plummeted 64% in 2022. But that is precisely what has made the stock compelling for growth investors.
The price-to-sales ratio of 2.1 at the current $46 share price is a bargain-bin valuation. This is supported by fundamentals that should propel 20%-plus annual top-line growth for the foreseeable future.
