Trupanion (NYSE:TRUP) released their 2nd quarter earnings recently. I found their presentation to be very interesting. In the earnings call, the company stated a goal of reaching 650,000 to 750,000 insured pets. Based on their historical insured pets growth numbers, I have estimated a four year time horizon for the company to reach their goal. What follows is an attempt to assess the value of Trupanion stock in four years.
I built my four year model based on information provided by Trupanion in their 2nd quarter earnings release. You can refer to the original presentation here.
Trupanion has set a goal to insure between 650,000 and 750,000 pets. The company reported a 38% CAGR of insured pets for the three years between 2011 and 2013. At 195,000 currently insured pets and a 38% CAGR, the company would be north of 700,000 insured pets in four years' time.
In four years, based on a 4% growth rate that is consistent with the company's recent history, I project Trupanion's monthly adjusted revenue per pet to be $51.36. Assuming the company has signed on roughly 700,000 pets by then, we can project $35,952,000 in monthly adjusted revenue - or around $430 million in revenue per year.
The company projects long term operating income to be between 8% and 11% of revenue. I used 10% for my model. In four years, $430 million in revenue would equate to roughly $43 million in income for the company.
$43 million divided by 26.56 million shares outstanding = $1.62 / share. A P/E ratio of 15 would produce a stock price of $24.28 in four years.
At the time of this writing, Trupanion is trading for around $9. If the stock were to reach what I have modeled out for the next four years, this would represent a 270% appreciation in share price.
Please remember that this is a simplified analysis that makes many assumptions about the future. Assessing the value of a business requires more depth than I have provided but I hope this article acts as a starting point for your own independent research.
Disclosure: The author is long TRUP.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.