Intrinsic value of Trupanion - TRUP

Previous Close

$28.19

  Intrinsic Value

$26.31

stock screener

  Rating & Target

hold

-7%

  Value-price divergence*

+963%

Previous close

$28.19

 
Intrinsic value

$26.31

 
Up/down potential

-7%

 
Rating

hold

 
Value-price divergence*

+963%

*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 0.8

 

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
  26.10
  23.99
  22.09
  20.38
  18.84
  17.46
  16.21
  15.09
  14.08
  13.17
  12.36
  11.62
  10.96
  10.36
  9.83
  9.34
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.51
  6.36
  6.23
  6.10
  5.99
Revenue, $m
  188
  237
  294
  359
  432
  513
  603
  701
  807
  920
  1,041
  1,170
  1,306
  1,449
  1,599
  1,757
  1,921
  2,092
  2,270
  2,456
  2,648
  2,849
  3,057
  3,273
  3,498
  3,732
  3,975
  4,228
  4,491
  4,765
  5,051
Variable operating expenses, $m
 
  179
  222
  271
  326
  388
  455
  529
  609
  695
  786
  883
  986
  1,094
  1,208
  1,326
  1,450
  1,579
  1,714
  1,854
  1,999
  2,151
  2,308
  2,471
  2,641
  2,818
  3,001
  3,192
  3,391
  3,598
  3,814
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
  234
  279
  329
  386
  449
  518
  593
  675
  762
  855
  954
  1,059
  1,168
  1,284
  1,404
  1,530
  1,661
  1,798
  1,940
  2,087
  2,242
  2,401
  2,566
  2,739
  2,918
  3,104
  3,297
  3,499
  3,709
  3,927
Operating income, $m
  -7
  3
  15
  30
  46
  65
  85
  108
  132
  158
  186
  216
  247
  281
  316
  352
  390
  430
  472
  515
  560
  607
  656
  707
  759
  814
  871
  931
  993
  1,057
  1,124
EBITDA, $m
  -3
  5
  18
  33
  51
  70
  91
  115
  140
  167
  197
  228
  261
  295
  332
  370
  410
  452
  495
  540
  587
  636
  687
  740
  795
  852
  912
  974
  1,038
  1,106
  1,176
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
Earnings before tax, $m
  -7
  3
  15
  29
  46
  64
  84
  106
  130
  155
  183
  212
  243
  275
  310
  346
  383
  422
  463
  505
  550
  595
  643
  693
  745
  798
  854
  912
  973
  1,036
  1,102
Tax expense, $m
  0
  1
  4
  8
  12
  17
  23
  29
  35
  42
  49
  57
  66
  74
  84
  93
  103
  114
  125
  136
  148
  161
  174
  187
  201
  216
  231
  246
  263
  280
  298
Net income, $m
  -7
  2
  11
  22
  33
  47
  61
  77
  95
  113
  133
  155
  177
  201
  226
  252
  280
  308
  338
  369
  401
  435
  470
  506
  544
  583
  624
  666
  710
  757
  805

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
  37
  45
  55
  67
  79
  93
  108
  124
  142
  161
  180
  201
  224
  247
  271
  296
  323
  350
  379
  409
  439
  472
  505
  540
  576
  613
  652
  693
  735
  779
Adjusted assets (=assets-cash), $m
  29
  37
  45
  55
  67
  79
  93
  108
  124
  142
  161
  180
  201
  224
  247
  271
  296
  323
  350
  379
  409
  439
  472
  505
  540
  576
  613
  652
  693
  735
  779
Revenue / Adjusted assets
  6.483
  6.405
  6.533
  6.527
  6.448
  6.494
  6.484
  6.491
  6.508
  6.479
  6.466
  6.500
  6.498
  6.469
  6.474
  6.483
  6.490
  6.477
  6.486
  6.480
  6.474
  6.490
  6.477
  6.481
  6.478
  6.479
  6.485
  6.485
  6.481
  6.483
  6.484
Average production assets, $m
  10
  12
  15
  18
  22
  26
  31
  36
  41
  47
  53
  60
  67
  74
  82
  90
  98
  107
  116
  125
  135
  145
  156
  167
  178
  190
  203
  216
  229
  243
  258
Working capital, $m
  35
  -23
  -28
  -34
  -41
  -49
  -58
  -67
  -77
  -88
  -100
  -112
  -125
  -139
  -154
  -169
  -184
  -201
  -218
  -236
  -254
  -273
  -293
  -314
  -336
  -358
  -382
  -406
  -431
  -457
  -485
Total debt, $m
  5
  1
  9
  18
  28
  39
  52
  65
  80
  96
  113
  130
  149
  169
  190
  212
  235
  258
  283
  309
  336
  363
  392
  422
  454
  486
  520
  555
  591
  630
  669
Total liabilities, $m
  38
  33
  41
  50
  60
  71
  84
  97
  112
  128
  145
  162
  181
  201
  222
  244
  267
  290
  315
  341
  368
  395
  424
  454
  486
  518
  552
  587
  623
  662
  701
Total equity, $m
  45
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  54
  58
  61
  65
  69
  74
  78
Total liabilities and equity, $m
  83
  37
  46
  56
  67
  79
  93
  108
  124
  142
  161
  180
  201
  223
  247
  271
  297
  322
  350
  379
  409
  439
  471
  504
  540
  576
  613
  652
  692
  736
  779
Debt-to-equity ratio
  0.111
  0.250
  1.940
  3.220
  4.200
  4.960
  5.560
  6.040
  6.430
  6.750
  7.010
  7.230
  7.410
  7.570
  7.700
  7.820
  7.920
  8.010
  8.090
  8.160
  8.220
  8.270
  8.320
  8.370
  8.410
  8.440
  8.480
  8.510
  8.540
  8.560
  8.590
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
  11
  22
  33
  47
  61
  77
  95
  113
  133
  155
  177
  201
  226
  252
  280
  308
  338
  369
  401
  435
  470
  506
  544
  583
  624
  666
  710
  757
  805
Depreciation, amort., depletion, $m
  4
  2
  3
  4
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
Funds from operations, $m
  10
  4
  14
  25
  38
  52
  67
  84
  103
  123
  144
  167
  191
  216
  242
  270
  299
  330
  361
  394
  428
  464
  501
  539
  579
  621
  664
  709
  756
  805
  856
Change in working capital, $m
  5
  -5
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
Cash from operations, $m
  5
  9
  20
  31
  45
  60
  76
  94
  113
  134
  156
  179
  204
  230
  257
  285
  315
  346
  378
  412
  447
  483
  521
  560
  601
  643
  687
  734
  781
  831
  884
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -18
  -20
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -41
  -43
  -46
  -49
New CAPEX, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
Cash from investing activities, $m
  -7
  -5
  -5
  -6
  -8
  -8
  -10
  -11
  -12
  -14
  -15
  -18
  -19
  -20
  -23
  -24
  -26
  -29
  -30
  -32
  -35
  -37
  -40
  -42
  -44
  -48
  -50
  -54
  -56
  -60
  -64
Free cash flow, $m
  -2
  5
  14
  25
  37
  51
  66
  83
  100
  120
  140
  162
  185
  209
  234
  261
  289
  318
  348
  379
  412
  446
  481
  518
  556
  596
  637
  680
  725
  772
  820
Issuance/(repayment) of debt, $m
  5
  -4
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
Issuance/(repurchase) of shares, $m
  4
  10
  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
  6
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
Total cash flow (excl. dividends), $m
  6
  10
  22
  34
  47
  62
  79
  96
  115
  135
  157
  180
  204
  229
  255
  283
  311
  341
  373
  405
  439
  474
  510
  548
  587
  628
  671
  715
  761
  810
  860
Retained Cash Flow (-), $m
  0
  -12
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
Prev. year cash balance distribution, $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
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
 
  52
  21
  33
  46
  61
  77
  95
  113
  134
  155
  178
  202
  227
  253
  280
  309
  339
  370
  402
  436
  470
  507
  544
  584
  625
  667
  711
  757
  805
  856
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
 
  49
  19
  29
  38
  47
  56
  64
  71
  77
  81
  84
  86
  86
  85
  82
  79
  74
  68
  62
  55
  49
  42
  36
  30
  24
  19
  15
  12
  9
  6
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Trupanion, Inc. provides medical insurance plans for cats and dogs throughout the United States, Canada and Puerto Rico. The Company operates in two business segments: subscription business and other business. The subscription business segment includes monthly subscriptions for its medical plan, which are marketed to consumers. The other business segment includes other operations that are not directly marketed to consumers. The Company offers a software solution, Trupanion Express, which is designed to facilitate the direct payment of invoices to veterinary practices. Trupanion Express integrates with veterinarians' practice management software, which allows the Company to access data. The Company's subsidiaries include American Pet Insurance Company, Trupanion Managers USA, Inc., Trupanion Brokers Ontario, Inc. and Wyndham Insurance Company (SAC), Ltd.

FINANCIAL RATIOS  of  Trupanion (TRUP)

Valuation Ratios
P/E Ratio -118.8
Price to Sales 4.4
Price to Book 18.5
Price to Tangible Book
Price to Cash Flow 166.3
Price to Free Cash Flow 277.2
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 26.1% 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 2.4 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 29.443 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 $0.8 billion.

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COMPANY NEWS

▶ ETFs with exposure to Trupanion, Inc. : October 6, 2017   [Oct-06-17 11:08AM  Capital Cube]
▶ Trupanion Takes the Shame out of Cone of Shame   [Oct-04-17 06:00AM  GlobeNewswire]
▶ After the storm: keeping your pet safe after a hurricane   [Sep-08-17 06:17PM  GlobeNewswire]
▶ 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]
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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