Source: Unsplash 

The rise in pet ownership is an established and persistent trend. More important, it’s unlikely to reverse, observes Steve Mauzy, growth stock expert, and editor of Wyatt Research's Personal Wealth Advisor. 

People are also spending more to maintain their pets. Overall pet industry expenditures are expected to total $58.5 billion this year, a major increase over the $17 billion in total expenditures 20 years ago.

Money spent on veterinary care is consuming more U.S. dollars. Americans spent $15.7 billion in veterinary care in 2015. They are estimated to have spent roughly $20 billion last year. As with human medical care, don’t expect the spending trend to reverse. 

More pet owners are seeking to offset the rising costs of veterinary care with insurance. This trend, in turn, leads to our investment opportunity.

Trupanion (TRUP) is the leading provider of medical insurance for cats and dogs. The business is primarily subscription-driven, with premiums paid monthly. Trupanion sells its insurance in the United States, Canada, Puerto Rico, and Australia.

When investors think of growth, few think of insurance. Insurance conjures images of stodgy, slow-growth companies bought for their income potential. Trupanion is a different animal. Revenue multiplies, and it multiplies at a rate wild rabbits would be hard-pressed to match.

In short, we’re talking 20%+ annual revenue growth over the past decade. What’s more, the impressive growth isn’t skewed by a few outlier years from days long gone. Revenue in 2020 was up 31% compared to 2019. 

The retention rate suggests a snowball effect is at work. Once a customer is captured, he or she stays captured. Trupanion’s average monthly retention rate was 98.5% over the past 10 years.

Trupanion ended 2020 with almost 863,000 enrolled pets. The number has doubled over the past three years. Odds favor the company hitting the psychologically important 1 million enrolled-pets figure this year.

It’s not only about enrolling more pets, it’s also about what the owner is willing to pay per pet. Average monthly revenue per pet was $60.37 at the end of 2020. That’s a 15% average monthly increase compared to 2017.

Fourth-quarter financial results disappointed investors. The top-line topped most analysts’ expectations; the bottom line failed to meet them, as Trupanion reported a net loss of $0.09 per share while Wall Street was expecting a net loss of $0.03.

The bottom line was stymied by rising acquisition costs. This fazed many investors, but not this one. Trupanion is acquiring more lucrative customers with the increased spending. It is acquiring customers more willing to keep their pets insured.

The insured period increased to 78 months to end the year compared to 70 months when the year started. The higher customer acquisition expense is justified. The current share price today isn’t.

Trupanion shares trade at only 4.3 times 2021 estimates for $665 million in total revenue. The shares were trading close to $120 when we entered 2021. A share price close to $120 is a fair price target as we enter 2022.