Tollymore Investment on Trupanion (TRUP): ‘It Keeps Performing Better Each Quarter’

Tollymore Investment Partners, a private investment partnership firm that invests in small quantities of publicly listed companies, published its third-quarter 2020 Investor Letter – a copy of which can be downloaded here. A return of 39.5% was recorded by the fund for the 1st 9 months of 2020, way above its MSCI ACWI benchmark that returned 13%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.

Tollymore Investment Partners, in their  Q3 2020 Investor Letter said that they noticed the consistent progress of Trupanion, Inc. (NASDAQ: TRUP) that is why they were able to maintain their position in the company. Trupanion, Inc. is a  pet insurance provider that currently has a $4.6 billion market cap. For the past 3 months, Trupanion, Inc. delivered a 27% return and settled at $117.45 per share at the closing of January 15th.

Here is what Tollymore Investment Partners has to say about Trupanion, Inc. in their Investor Letter:

“In a decade of public documents, TRUP has never reported a quarter of sales that was lower than the previous quarter. This is not due to extraordinary execution but the result of a monthly recurring revenue model and a large underpenetrated addressable market. In the US around 2% of cats and dogs are insured. In the UK, a market in which Patsy Bloom’s PetPlan business increased penetration via a similar comprehensive product and vet distribution, one quarter of dogs and cats are insured. In that market it took 20 years to reach 5% penetration and another 20 years to reach 25% penetration. This potential for accelerating growth is not reflected in TRUP’s quoted price.

At the same time TRUP is one of the most volatile stocks we have owned, allowing us to occasionally pare back or add to our ownership when the quoted price makes such actions likely to improve our equity investment results.

There is something special about the incentives of TRUP’s stakeholders and the economic characteristics of the services TRUP sells. Consider what a 70% loss ratio implies for the customer’s value proposition. Customers are paying an average mark-up of 43% for each dollar of premium. This would seem uncompelling for a customer seeking an ROI on their premiums. But pet owners are clearly not seeking a return; in fact, they hope that their pets are never sick or injured. Further, competitors’ loss ratios imply mark-ups in the order of 100%, highlighting TRUP’s superior value, if not cheaper price.

Even if pet owners were seeking a return on their paid premiums, there is an asymmetry in the value chain that makes it difficult to self-fund the medical needs of individual pets. Pet owners are not playing a repeated game; the average experience of the average pet, even if it were known to individual pet owners, is of limited use in underwriting the potential costs of individual pets. TRUP on the other hand is playing a repeated game using pooled data to accurately underwrite a group of pets. It is this aggregated data that constitutes a barrier to profitable participation that would make it difficult for vets to offer their own insurance for example.

Other components of synergistic value chain: (1) Trupanion Express allows claims to be paid directly by Trupanion within minutes. This is great for TRUP as it allows access to more data from other insurance providers. It is great for customers there is no need to settle expenses out of pocket. And it is great for vets because it lowers economic euthanasia and allows for Plan A treatment options, and saves credit card fees, which might be 20% of their profits. An important insight here is that vets are paid a fraction of doctors’ salaries. Their careers are intrinsically motivated and mission driven. (2) Enterprise value growth is shared between employees and owners according to a transparent formula. And all employees are owners.”

Last December 2020, we published an article telling that Trupanion, Inc. (NASDAQ: TRUP) was in 12 hedge funds’ portfolio, almost making to its all time high statistics of 15. TRUP delivered a massive 258.19% return in the past 12 months.

Our calculations showed that Trupanion, Inc. (NASDAQ: TRUP) does not belong to the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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