Trupanion Inc (TRUP, Financial) has experienced a significant daily loss of -8.25%, contrasting with a 3-month gain of 6.97%. With a reported Loss Per Share of $1.26, investors are keen to understand if the current market valuation truly reflects the intrinsic value of the company. The question arises: is Trupanion significantly undervalued? This article delves into a detailed valuation analysis to uncover the answer.
As we explore Trupanion's financial landscape, we invite you to consider the comprehensive analysis that follows, which may provide valuable insights into the company's true worth.
Company Introduction
Trupanion Inc (TRUP, Financial) is a key player in the U.S. insurance industry, specializing in products designed for pets, particularly cats and dogs. The company operates through two business segments: a subscription business, which primarily generates revenue from direct-to-consumer products, and another segment that includes various business-to-business relationships and different margin profiles. This includes writing policies on behalf of third parties and offering other products and software solutions.
When comparing Trupanion's current stock price of $31.92 to the GuruFocus Fair Value (GF Value) of $98.29, it appears that the stock may be significantly undervalued. With a market cap of $1.30 billion, the discrepancy between the market price and the GF Value warrants a closer examination.
Summarize GF Value
The GF Value is a proprietary calculation that aims to determine the intrinsic value of a stock. This value is derived from historical trading multiples, an adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line suggests the fair trading value of a stock, and when a stock's price significantly deviates from this line, it may indicate whether the stock is overvalued or undervalued.
For Trupanion (TRUP, Financial), the evidence points towards a significant undervaluation. The GF Value, which takes into account historical multiples, GuruFocus' adjustment factor, and future performance estimates, suggests that the stock's fair value is much higher than its current trading price. This implies that the long-term return of Trupanion's stock could potentially be much higher than its business growth.
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Financial Strength
Investing in companies with solid financial strength is crucial to mitigate the risk of permanent capital loss. Trupanion's financial strength can be assessed by examining metrics such as the cash-to-debt ratio, which at 2.06, surpasses 51.66% of its peers in the Insurance industry. This indicates a fair financial position, as reflected by GuruFocus' financial strength rating of 6 out of 10 for Trupanion.
Profitability and Growth
Profitability is a key indicator of a company's risk profile, with consistent profitability over time being a sign of lower risk. Trupanion's profit margins are crucial to understanding its performance potential. Despite having revenues of $1.10 billion in the past 12 months, Trupanion reported a Loss Per Share of $1.26, and an operating margin of -4.73%, which is lower than 74.19% of the companies in the Insurance industry. This positions Trupanion's profitability as poor according to GuruFocus rankings.
Growth is also a vital factor in valuation, with a strong correlation between a company's growth and the long-term performance of its stock. Trupanion's 3-year average annual revenue growth rate stands at 26.1%, outperforming 91.8% of its industry competitors. However, its 3-year average EBITDA growth rate is 0%, which is less impressive when compared to its peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) is another method to assess profitability. ROIC indicates how effectively a company generates cash flow relative to the capital invested, while WACC represents the average rate a company pays to finance its assets. For Trupanion, the past 12 months have seen an ROIC of -10.23 and a WACC of 12.99, suggesting that it is not currently creating value for shareholders.
Conclusion
In conclusion, Trupanion (TRUP, Financial) appears to be significantly undervalued according to GuruFocus' proprietary GF Value. While the company's financial condition is fair, its profitability is rated as poor, and its growth ranks unfavorably compared to industry peers. For those interested in a deeper dive into Trupanion's financials, you can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
