New Opportunities In Pet Insurance Stocks

|
Includes: PETX, SKBI, TRUP
by: Gold Traders

Summary

Consumer activity and strong labor markets creating more disposable income for American consumers.

Trends show consumers spending significant sums on annual vet bills for pets.

Pet insurance companies showing growth rates that outperform most available sectors.

As the US economy continues to stabilize, investors are looking for new stock sectors that can be used to generate growth revenue in relatively elevated markets. But, when we look at the major benchmark indicators, we can see that most of these sectors have reached mature levels. This means that investors will need to identify emerging industries as a means for protecting against the broader potential for slowing momentum in stocks.

One sector that has stayed under the radar and shown strong revenue increases over the last several quarters is the pet insurance industry, and several stock names have emerged as key beneficiaries. Here, we will look at some of the factors supporting the industry as a whole and outline some of the available stock choices that would generate substantial returns for investors over the long term.

Consumer Strength Shows Increased Spending

Rising trends in labor markets have created increased average levels in disposable income and consumer spending over the last several years. A portion of these increases has flowed into the amount of money Americans spend on vet bills, which now comes in at more than $50 billion annually. Nearly one-third of that is tied directly to veterinary costs, and this has prompted many pet owners to start buying insurance in order to avoid surprise vet bills in cases of illness or emergency.

All of this translates to annual growth rates of more than 12%, in an industry that is quickly starting to outperform the market. As far as specific stocks are concerned, this has generated massive returns in companies like Trupanion (NYSE:TRUP), Skystar Bio-Pharmaceutical (NASDAQ:SKBI), and Aratana Therapeutics (NASDAQ:PETX).

Each of these companies has devoted most of its resources in these areas, and these pet pharma stocks should continue to benefit from the fact that they encounter regulatory periods that are shorter than what is seen in human drug companies. All of this translates to faster returns in an otherwise stalling stock market. Trupanion alone covers nearly 200,000 American pets, and this has helped the company generate returns of more than $80 million annually after little more than a decade in operation.

Capitalizing on a Constant Need

It might be thought by some that this type of growth will only be temporary in nature, but the reality is that this is a relatively new industry that will provide a constant need for American consumers.

In some cases, veterinary bills can rival what is seen in human doctor visits and this is something that should keep consumers focusing on protecting themselves from the potential economic shocks. According to Pet Insurance University, the average cost of pet surgery to remove a swallowed object is $6,243. This is a far cry from the average monthly cost for pet insurance, which is still under $30. As long as there are these types of discrepancies in the ways veterinary visits are billed, we are likely to see strong revenue performances in the companies that are providing these services. If you are an investor that is looking for consistent growth potential over the long term, this is an area of the market that should be considered as a viable option for exposure.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.