Intrinsic value of Trupanion - TRUP

Previous Close

$22.10

  Intrinsic Value

$56.61

stock screener

  Rating & Target

str. buy

+156%

  Value-price divergence*

+1590%

Previous close

$22.10

 
Intrinsic value

$56.61

 
Up/down potential

+156%

 
Rating

str. buy

 
Value-price divergence*

+1590%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TRUP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  27.89
  27.90
  25.61
  23.55
  21.69
  20.02
  18.52
  17.17
  15.95
  14.86
  13.87
  12.98
  12.19
  11.47
  10.82
  10.24
  9.71
  9.24
  8.82
  8.44
  8.09
  7.78
  7.51
  7.26
  7.03
  6.83
  6.64
  6.48
  6.33
  6.20
  6.08
Revenue, $m
  188
  240
  302
  373
  454
  545
  646
  757
  878
  1,008
  1,148
  1,297
  1,455
  1,622
  1,797
  1,981
  2,174
  2,375
  2,584
  2,802
  3,029
  3,265
  3,510
  3,765
  4,029
  4,304
  4,590
  4,888
  5,197
  5,519
  5,855
Variable operating expenses, $m
 
  182
  228
  282
  343
  412
  488
  571
  663
  761
  867
  979
  1,099
  1,225
  1,357
  1,496
  1,641
  1,793
  1,951
  2,116
  2,287
  2,465
  2,650
  2,842
  3,042
  3,250
  3,466
  3,690
  3,924
  4,167
  4,420
Fixed operating expenses, $m
 
  55
  57
  58
  60
  61
  63
  64
  66
  67
  69
  71
  73
  74
  76
  78
  80
  82
  84
  86
  88
  91
  93
  95
  98
  100
  103
  105
  108
  111
  113
Total operating expenses, $m
  195
  237
  285
  340
  403
  473
  551
  635
  729
  828
  936
  1,050
  1,172
  1,299
  1,433
  1,574
  1,721
  1,875
  2,035
  2,202
  2,375
  2,556
  2,743
  2,937
  3,140
  3,350
  3,569
  3,795
  4,032
  4,278
  4,533
Operating income, $m
  -7
  4
  17
  33
  52
  72
  96
  121
  149
  180
  212
  247
  284
  323
  364
  407
  452
  500
  549
  600
  654
  709
  767
  827
  889
  954
  1,022
  1,092
  1,165
  1,242
  1,321
EBITDA, $m
  -3
  5
  19
  35
  54
  75
  99
  125
  154
  185
  218
  254
  291
  331
  373
  417
  464
  512
  562
  615
  669
  726
  785
  846
  910
  976
  1,045
  1,117
  1,192
  1,270
  1,351
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  5
  5
  6
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
Earnings before tax, $m
  -7
  3
  17
  32
  50
  71
  93
  118
  146
  175
  207
  241
  277
  315
  355
  397
  441
  487
  535
  585
  637
  691
  747
  806
  866
  930
  996
  1,064
  1,135
  1,210
  1,287
Tax expense, $m
  0
  1
  5
  9
  14
  19
  25
  32
  39
  47
  56
  65
  75
  85
  96
  107
  119
  131
  144
  158
  172
  187
  202
  218
  234
  251
  269
  287
  307
  327
  347
Net income, $m
  -7
  2
  12
  24
  37
  52
  68
  86
  106
  128
  151
  176
  202
  230
  259
  290
  322
  355
  390
  427
  465
  504
  545
  588
  633
  679
  727
  777
  829
  883
  939

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  53
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  82
  49
  61
  76
  92
  111
  131
  154
  179
  205
  234
  264
  296
  330
  366
  403
  442
  483
  526
  570
  616
  664
  714
  766
  820
  876
  934
  994
  1,057
  1,123
  1,191
Adjusted assets (=assets-cash), $m
  29
  49
  61
  76
  92
  111
  131
  154
  179
  205
  234
  264
  296
  330
  366
  403
  442
  483
  526
  570
  616
  664
  714
  766
  820
  876
  934
  994
  1,057
  1,123
  1,191
Revenue / Adjusted assets
  6.483
  4.898
  4.951
  4.908
  4.935
  4.910
  4.931
  4.916
  4.905
  4.917
  4.906
  4.913
  4.916
  4.915
  4.910
  4.916
  4.919
  4.917
  4.913
  4.916
  4.917
  4.917
  4.916
  4.915
  4.913
  4.913
  4.914
  4.918
  4.917
  4.915
  4.916
Average production assets, $m
  10
  12
  15
  19
  23
  28
  33
  39
  45
  51
  59
  66
  74
  83
  92
  101
  111
  121
  132
  143
  154
  167
  179
  192
  205
  220
  234
  249
  265
  281
  299
Working capital, $m
  35
  -23
  -29
  -36
  -44
  -52
  -62
  -73
  -84
  -97
  -110
  -125
  -140
  -156
  -173
  -190
  -209
  -228
  -248
  -269
  -291
  -313
  -337
  -361
  -387
  -413
  -441
  -469
  -499
  -530
  -562
Total debt, $m
  5
  12
  23
  36
  51
  68
  86
  107
  129
  153
  178
  205
  234
  265
  297
  331
  366
  403
  441
  481
  523
  566
  611
  657
  706
  756
  809
  863
  920
  979
  1,040
Total liabilities, $m
  38
  44
  55
  68
  83
  100
  118
  139
  161
  185
  210
  237
  266
  297
  329
  363
  398
  435
  473
  513
  555
  598
  643
  689
  738
  788
  841
  895
  952
  1,011
  1,072
Total equity, $m
  45
  5
  6
  8
  9
  11
  13
  15
  18
  21
  23
  26
  30
  33
  37
  40
  44
  48
  53
  57
  62
  66
  71
  77
  82
  88
  93
  99
  106
  112
  119
Total liabilities and equity, $m
  83
  49
  61
  76
  92
  111
  131
  154
  179
  206
  233
  263
  296
  330
  366
  403
  442
  483
  526
  570
  617
  664
  714
  766
  820
  876
  934
  994
  1,058
  1,123
  1,191
Debt-to-equity ratio
  0.111
  2.460
  3.790
  4.790
  5.540
  6.110
  6.570
  6.920
  7.210
  7.440
  7.630
  7.790
  7.920
  8.030
  8.120
  8.210
  8.280
  8.340
  8.390
  8.440
  8.480
  8.520
  8.550
  8.580
  8.610
  8.630
  8.660
  8.680
  8.700
  8.720
  8.730
Adjusted equity ratio
  -0.276
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -7
  2
  12
  24
  37
  52
  68
  86
  106
  128
  151
  176
  202
  230
  259
  290
  322
  355
  390
  427
  465
  504
  545
  588
  633
  679
  727
  777
  829
  883
  939
Depreciation, amort., depletion, $m
  4
  1
  2
  2
  2
  3
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  27
  28
  30
Funds from operations, $m
  10
  4
  14
  26
  39
  54
  71
  90
  111
  133
  157
  182
  209
  238
  268
  300
  333
  368
  404
  441
  480
  521
  563
  607
  653
  701
  750
  802
  855
  911
  969
Change in working capital, $m
  5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
Cash from operations, $m
  5
  9
  20
  32
  47
  63
  81
  101
  122
  145
  170
  197
  225
  254
  285
  317
  351
  387
  424
  462
  502
  544
  587
  632
  678
  727
  778
  830
  885
  942
  1,002
Maintenance CAPEX, $m
  0
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -27
  -28
New CAPEX, $m
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
Cash from investing activities, $m
  -7
  -4
  -4
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -35
  -37
  -38
  -41
  -43
  -45
Free cash flow, $m
  -2
  5
  15
  27
  41
  56
  73
  92
  112
  134
  158
  183
  210
  238
  268
  299
  331
  365
  401
  438
  476
  516
  558
  601
  646
  692
  741
  792
  844
  899
  956
Issuance/(repayment) of debt, $m
  5
  7
  11
  13
  15
  17
  18
  20
  22
  24
  26
  27
  29
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
Issuance/(repurchase) of shares, $m
  4
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  8
  8
  11
  13
  15
  17
  18
  20
  22
  24
  26
  27
  29
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  48
  50
  52
  54
  57
  59
  61
Total cash flow (excl. dividends), $m
  6
  13
  27
  40
  56
  73
  92
  112
  134
  158
  184
  210
  239
  269
  300
  333
  367
  402
  439
  478
  518
  559
  603
  648
  694
  743
  793
  846
  901
  958
  1,018
Retained Cash Flow (-), $m
  0
  -4
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Prev. year cash balance distribution, $m
 
  44
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  53
  25
  39
  54
  71
  90
  110
  132
  156
  181
  207
  236
  265
  296
  329
  363
  398
  435
  473
  513
  555
  598
  642
  689
  737
  788
  840
  895
  952
  1,011
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  51
  23
  34
  44
  55
  65
  74
  82
  89
  95
  98
  101
  101
  99
  97
  92
  87
  80
  73
  65
  57
  50
  42
  35
  29
  23
  18
  14
  10
  8
Current shareholders' claim on cash, %
  100
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4

Trupanion, Inc., together with its subsidiaries, provides medical insurance plans for cats and dogs on monthly subscription basis in the United States, Canada, and Puerto Rico. It serves pet owners and veterinarians through third-party referrals and online member acquisition channels. The company was formerly known as Vetinsurance International, Inc. changed its name to Trupanion, Inc. in 2013. Trupanion, Inc. was founded in 2000 and is based in Seattle, Washington.

FINANCIAL RATIOS  of  Trupanion (TRUP)

Valuation Ratios
P/E Ratio -93.1
Price to Sales 3.5
Price to Book 14.5
Price to Tangible Book
Price to Cash Flow 130.4
Price to Free Cash Flow 217.3
Growth Rates
Sales Growth Rate 27.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -60%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 11.1%
Total Debt to Equity 11.1%
Interest Coverage 0
Management Effectiveness
Return On Assets -9.2%
Ret/ On Assets - 3 Yr. Avg. -18.6%
Return On Total Capital -14.7%
Ret/ On T. Cap. - 3 Yr. Avg. -28.6%
Return On Equity -15.6%
Return On Equity - 3 Yr. Avg. -40.2%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 17.6%
Gross Margin - 3 Yr. Avg. 17.3%
EBITDA Margin -1.6%
EBITDA Margin - 3 Yr. Avg. -8.9%
Operating Margin -3.7%
Oper. Margin - 3 Yr. Avg. -9.7%
Pre-Tax Margin -3.7%
Pre-Tax Margin - 3 Yr. Avg. -11.1%
Net Profit Margin -3.7%
Net Profit Margin - 3 Yr. Avg. -11.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

TRUP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRUP stock intrinsic value calculation we used $188 million for the last fiscal year's total revenue generated by Trupanion. The default revenue input number comes from 2016 income statement of Trupanion. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TRUP stock valuation model: a) initial revenue growth rate of 27.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for TRUP is calculated based on our internal credit rating of Trupanion, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Trupanion.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TRUP stock the variable cost ratio is equal to 75.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $54 million in the base year in the intrinsic value calculation for TRUP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Trupanion.

Corporate tax rate of 27% is the nominal tax rate for Trupanion. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TRUP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for TRUP are equal to 5.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Trupanion operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TRUP is equal to -9.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $45 million for Trupanion - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 29.209 million for Trupanion is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Trupanion at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Trupanion beats 2Q profit forecasts   [Aug-01-17 06:57PM  Associated Press]
▶ ETFs with exposure to Trupanion, Inc. : May 30, 2017   [May-30-17 12:48PM  Capital Cube]
▶ ETFs with exposure to Trupanion, Inc. : May 5, 2017   [May-05-17 04:37PM  Capital Cube]
▶ Trupanion reports 1Q loss   [May-02-17 07:23PM  Associated Press]
▶ ETFs with exposure to Trupanion, Inc. : April 7, 2017   [Apr-07-17 05:38PM  Capital Cube]
▶ Trupanion reports 4Q loss   [Feb-14-17 05:11PM  Associated Press]
▶ Is Trupanion Inc (TRUP) A Good Stock To Buy?   [Dec-14-16 02:35AM  at Insider Monkey]
▶ 5 Intriguing Additions To Cheyne Capitals Portfolio in Q3   [Dec-01-16 07:53AM  at Insider Monkey]
▶ Trupanion Reports Third Quarter 2016 Results   [04:05PM  GlobeNewswire]
▶ Nasdaq gains record number of transfers from NYSE   [Jul-06-16 04:00PM  at MarketWatch]
▶ Pet health insurers seeing doggone good times   [Jun-20-16 12:04PM  at CNBC]
▶ Trupanion to Move to Nasdaq   [04:01PM  PR Newswire]
Stock chart of TRUP Financial statements of TRUP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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