Steel City Capital: “Shorting Trupanion (TRUP) Has Been Perennially Painful”

Steel City Capital, an investment management company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund declined 11.2% net of fees in the second quarter, compared to a decline of 16.4% in the S&P 500 Index and 17.5% in the Russell 2000 Index. Market conditions like inflation, rate hikes, and fears of a recession affected the fund’s performance in the first half of the year. For more information on the fund’s top picks in 2022, please check its top five holdings.

Steel City Capital mentioned Trupanion, Inc. (NASDAQ:TRUP) in the letter and discussed its views about the company. Trupanion, Inc. (NASDAQ:TRUP) is an insurance provider for pets and is headquartered in Seattle, Washington. The stock of Trupanion, Inc. (NASDAQ:TRUP) closed at $74.91 per share on August 15, 2022. One-month return of Trupanion, Inc. (NASDAQ:TRUP) rose to 18.72% while its shares lost 18.84% of their value over the last 52 weeks. Trupanion, Inc. (NASDAQ:TRUP) has a market capitalization of $3.052 billion.

Here’s what Steel City Capital specifically said about Trupanion, Inc. (NASDAQ:TRUP) in its Q2 2022 investor letter:

“In recent days, meme stocks and a long list of other unprofitable growth companies have rallied, causing discomfort (perhaps PTSD) for those of us who hold short positions in such companies. While there are myriad examples, two of our long-held (and perennially painful) short positions illustrate the phenomenon well. Let’s start with Trupanion, Inc. (NASDAQ:TRUP). The second quarter print and guide was a proverbial dumpster fire. The company’s net loss expanded year/year, which was attributed to 1) a return of claim frequency to pre-pandemic levels and 2) a recent acceleration in claim severity (the cost per claim covered). Management tried to spin the inflationary-nature of claim expenses in a positive light, but under no circumstances should an insurance company be bragging about increasing frequency and severity – this is literally the exact opposite of what the company should want to see. (Along with treatment of SBC, this is another area were Buffett-Fanboi Darryl Rawlings apparently has views that diverge with the Oracle.) Alongside these trends, management revised down guidance for “adjusted operating income” growth from 25% to a range of 15-20%. One would expect an unprofitable insurance company trading at nearly 9.0x P/B to be down significantly on the news, but shares are essentially flat compared to pre-release levels.”

Photo by Karlo Tottoc on Unsplash

Trupanion, Inc. (NASDAQ:TRUP) is not on the list of  30 Most Popular Stocks Among Hedge Funds. As per our database, Trupanion, Inc. (NASDAQ:TRUP) was held by 18 hedge fund portfolios at the end of the first quarter, which was 20 in the previous quarter.

We discussed Trupanion, Inc. (NASDAQ:TRUP) in another article and shared Polen Capital’s views about the company. You can check our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.