Author Topic: TRUP - Trupanion  (Read 15347 times)

Og

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TRUP - Trupanion
« on: June 05, 2017, 11:36:24 AM »
I was surprised not to find another thread of this company. Will anyone be attending the Annual Meeting or listening to the webcast? Would be great to discuss and compare notes. The meeting is June 7 2017

http://investors.trupanion.com/news-and-events/press-releases/press-release-details/2017/Trupanion-Announces-Date-of-2017-Annual-Meeting-of-Stockholders/default.aspx


Travis Wiedower

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Re: TRUP - Trupanion
« Reply #1 on: June 05, 2017, 01:28:28 PM »
I'll be at the annual meeting on Wednesday. Don't own it, but I've been doing a lot of research on it lately. I like the company, industry, and management, but can't get there on valuation. As of now it's a great company to have already researched and sitting on my watch list.
My investing blog: Egregiously Cheap

Travis Wiedower

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Re: TRUP - Trupanion
« Reply #2 on: June 05, 2017, 01:55:01 PM »
To add more content to the thread, I wanted to copy some thoughts I had on valuation. Hopefully I'm way off base and someone can convince me it's cheap  ;D

"It looks like they could hit $1B in revenue around 2025. At that point they'd be at scale targeting a 15% discretionary margin (per management). Discretionary margin doesn't include sales and marketing expense and stock-based comp. If sales and marketing margin is 3% at scale (vs 7.9% in 2016) and stock-based comp is 1% at scale (vs 1.5% in 2016), that puts pre-tax margins at 11% (15% - 3% - 1%). By then their NOLs should be burned off so they'd be paying 34% in taxes, which puts their net margin at 7.26%  (11% * (1 - .34)).

So $1B revenue * 7.26% net margin = $72.6M net income / 35M shares outstanding (2% share dilution per year from now until then) = $2.07 EPS. $2.07 EPS * 25 (high quality company with plenty of runway still left) = $51.75. A $51.75 share price after 2025 earnings gives us a 10.8% IRR from today's price.

Given the above, it seems like the market is pricing it fairly. And most of those assumptions above are based on management's own guidance of what their financials will look like at scale. This means for the company to be significantly undervalued today, Darryl's own guidance would have to be way too conservative, which almost never happens from management.

FWIW, using my same 2025 results above, today's share price would have to be $10 to get a 20% IRR, which obviously isn't happening anytime soon."
My investing blog: Egregiously Cheap

SlowAppreciation

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Re: TRUP - Trupanion
« Reply #3 on: June 05, 2017, 03:52:35 PM »
To add more content to the thread, I wanted to copy some thoughts I had on valuation. Hopefully I'm way off base and someone can convince me it's cheap  ;D

"It looks like they could hit $1B in revenue around 2025. At that point they'd be at scale targeting a 15% discretionary margin (per management). Discretionary margin doesn't include sales and marketing expense and stock-based comp. If sales and marketing margin is 3% at scale (vs 7.9% in 2016) and stock-based comp is 1% at scale (vs 1.5% in 2016), that puts pre-tax margins at 11% (15% - 3% - 1%). By then their NOLs should be burned off so they'd be paying 34% in taxes, which puts their net margin at 7.26%  (11% * (1 - .34)).

So $1B revenue * 7.26% net margin = $72.6M net income / 35M shares outstanding (2% share dilution per year from now until then) = $2.07 EPS. $2.07 EPS * 25 (high quality company with plenty of runway still left) = $51.75. A $51.75 share price after 2025 earnings gives us a 10.8% IRR from today's price.

Given the above, it seems like the market is pricing it fairly. And most of those assumptions above are based on management's own guidance of what their financials will look like at scale. This means for the company to be significantly undervalued today, Darryl's own guidance would have to be way too conservative, which almost never happens from management.

FWIW, using my same 2025 results above, today's share price would have to be $10 to get a 20% IRR, which obviously isn't happening anytime soon."

I looked at it recently too, and I came away liking it more than I thought I would. There's a ton of runway, they require no capital, are differentiated in a commoditized market (insurance), and have a nice balance sheet.

The reason I haven't pulled the trigger is because 1) the growth is pretty impossible to predict and 2) it's even harder to predict the quality of the policies of an insurance companyŚlet alone a relatively new one. That's just too many unknowns for me, plus the valuation isn't great as you've mentioned. But definitely one on my watch list.

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magneto23

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Re: TRUP - Trupanion
« Reply #5 on: June 07, 2017, 09:26:54 AM »
You guys, this stock is ridiculously overvalued, and it's not even close. Remember this is an insurance company, not a tech company. The analysts who write on it are ALL tech/software/internet analysts. If you're familiar w/ those biz models, it's all about the "subscriber base" and recurring revenue base over a small amount of fixed cost. Of course, all insurance can also be described as "recurring revenue" since policies lapse at a somewhat infrequent rate. But variable costs are extremely high, that's the nature of insurance and why they trade at multiples of book value not double digit revenue multiples on huge growth rates out 5 years a la SAAS. Mgt intentionally encourages this false narrative in their disclosure/classification and their investor communication. Even so, the stock is ABOVE the target prices for all of these uber optimistic tech analysts, except for the last report that the guy compared to AMZN (it is literally the worst "professional" sell-side research report I've read in my career). Anyway, there is plenty of competition. Go do some channel checks regarding when people opt for pet insurance (when problems are on the horizon = adverse selection), what you think the majority of pet owners' willingness to pay in this country ($50 / month? hmm, maybe wealthier set, but throwing around the UK/Sweden penetration rates when they pay ZERO for human health insurance in those countries is not exactly the best comp, and how much do people pay in recession conditions? It makes more sense to "self-insure" unless you have a chronic issues). Of course, HUMANIZATION OF PETS is a sexy growth concept, and the competition aren't (stand-alone) public companies so this is one of the only ways to bet on it. Why are insiders selling? What do we make of the reserves on the balance sheet being so small, especially if we figure out how to keep pets alive longer w/ more procedures a la humans? What do we make of the huge marketing spend and expense base. Lifetime Value of a Pet? Give me a break.

racemize

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Re: TRUP - Trupanion
« Reply #6 on: June 07, 2017, 09:48:23 AM »
To add more content to the thread, I wanted to copy some thoughts I had on valuation. Hopefully I'm way off base and someone can convince me it's cheap  ;D

"It looks like they could hit $1B in revenue around 2025. At that point they'd be at scale targeting a 15% discretionary margin (per management). Discretionary margin doesn't include sales and marketing expense and stock-based comp. If sales and marketing margin is 3% at scale (vs 7.9% in 2016) and stock-based comp is 1% at scale (vs 1.5% in 2016), that puts pre-tax margins at 11% (15% - 3% - 1%). By then their NOLs should be burned off so they'd be paying 34% in taxes, which puts their net margin at 7.26%  (11% * (1 - .34)).

So $1B revenue * 7.26% net margin = $72.6M net income / 35M shares outstanding (2% share dilution per year from now until then) = $2.07 EPS. $2.07 EPS * 25 (high quality company with plenty of runway still left) = $51.75. A $51.75 share price after 2025 earnings gives us a 10.8% IRR from today's price.

Given the above, it seems like the market is pricing it fairly. And most of those assumptions above are based on management's own guidance of what their financials will look like at scale. This means for the company to be significantly undervalued today, Darryl's own guidance would have to be way too conservative, which almost never happens from management.

FWIW, using my same 2025 results above, today's share price would have to be $10 to get a 20% IRR, which obviously isn't happening anytime soon."

I looked at it recently too, and I came away liking it more than I thought I would. There's a ton of runway, they require no capital, are differentiated in a commoditized market (insurance), and have a nice balance sheet.

The reason I haven't pulled the trigger is because 1) the growth is pretty impossible to predict and 2) it's even harder to predict the quality of the policies of an insurance companyŚlet alone a relatively new one. That's just too many unknowns for me, plus the valuation isn't great as you've mentioned. But definitely one on my watch list.

I apologize for my ignorance here, but what makes them differentiated from other pet insurance and/or allows no capital?  FFH made a pet insurance acquisition a few yreaes back so I'm interested in how this one can be much different than the rest.

atbed

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Re: TRUP - Trupanion
« Reply #7 on: June 07, 2017, 11:36:32 AM »
To add more content to the thread, I wanted to copy some thoughts I had on valuation. Hopefully I'm way off base and someone can convince me it's cheap  ;D

"It looks like they could hit $1B in revenue around 2025. At that point they'd be at scale targeting a 15% discretionary margin (per management). Discretionary margin doesn't include sales and marketing expense and stock-based comp. If sales and marketing margin is 3% at scale (vs 7.9% in 2016) and stock-based comp is 1% at scale (vs 1.5% in 2016), that puts pre-tax margins at 11% (15% - 3% - 1%). By then their NOLs should be burned off so they'd be paying 34% in taxes, which puts their net margin at 7.26%  (11% * (1 - .34)).

So $1B revenue * 7.26% net margin = $72.6M net income / 35M shares outstanding (2% share dilution per year from now until then) = $2.07 EPS. $2.07 EPS * 25 (high quality company with plenty of runway still left) = $51.75. A $51.75 share price after 2025 earnings gives us a 10.8% IRR from today's price.

Given the above, it seems like the market is pricing it fairly. And most of those assumptions above are based on management's own guidance of what their financials will look like at scale. This means for the company to be significantly undervalued today, Darryl's own guidance would have to be way too conservative, which almost never happens from management.

FWIW, using my same 2025 results above, today's share price would have to be $10 to get a 20% IRR, which obviously isn't happening anytime soon."

I looked at it recently too, and I came away liking it more than I thought I would. There's a ton of runway, they require no capital, are differentiated in a commoditized market (insurance), and have a nice balance sheet.

The reason I haven't pulled the trigger is because 1) the growth is pretty impossible to predict and 2) it's even harder to predict the quality of the policies of an insurance companyŚlet alone a relatively new one. That's just too many unknowns for me, plus the valuation isn't great as you've mentioned. But definitely one on my watch list.

I apologize for my ignorance here, but what makes them differentiated from other pet insurance and/or allows no capital?  FFH made a pet insurance acquisition a few yreaes back so I'm interested in how this one can be much different than the rest.

We're considering pet insurance ATM for a new pup.

I thought this was a helpful review by a third-party:
https://www.caninejournal.com/pet-insurance-comparison/

The site has Healthy Paws and Pet Plans ahead of Trupanion.
1. TRUP has the following to say about Healthy Paws:
http://trupanion.com/pet-insurance-comparison/trupanion-vs-healthypaws
2. and Pet Plans:
http://trupanion.com/pet-insurance-comparison/trupanion-vs-petplan

TRUP seems to believe they are better b/c they provide a combination of some of the following benefits: (1) direct pay, (2) no price increases due to age, (3) 24 hour access 7 days a week, (4) waiting periods, and/or (5) some coverage differences

Although direct pay is a great feature, I don't believe TRUP is that differentiated. They are still working on rolling out direct pay, and I don't think it is available everywhere. I think investors are mainly excited by the general growth of the entire industry. TRUP is only insurer solely focused on pet care and 20%+ revenue growth is extremely attractive and seems sustainable for quite some time.

The focus seems to be on potential positive cash flow near term and positive net income in the intermediate term.

I'm very surprised that they have a deminimis float...
« Last Edit: June 07, 2017, 11:50:47 AM by atbed »

muscleman

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Re: TRUP - Trupanion
« Reply #8 on: June 07, 2017, 05:09:03 PM »
I've done research on IHC and after talking to their management, they mentioned TRUP as one of the few other pet insurers.
I think IHC is much more compelling.

Jurgis

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Re: TRUP - Trupanion
« Reply #9 on: June 07, 2017, 08:23:24 PM »
Screw pet insurance.


But you guys already knew that.

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