Revenues Tell The Story For Trupanion, Inc. (NASDAQ:TRUP) As Its Stock Soars 25%

Trupanion, Inc. (NASDAQ:TRUP) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 150% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies operating in the United States' Insurance industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Trupanion as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Trupanion

What Does Trupanion's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Trupanion has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Trupanion.

Is There Enough Revenue Growth Forecasted For Trupanion?

In order to justify its P/S ratio, Trupanion would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The latest three year period has also seen an excellent 102% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.7% each year during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 5.4% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Trupanion's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in Trupanion's shares has lifted the company's P/S handsomely. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into Trupanion shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Trupanion with six simple checks on some of these key factors.

If you're unsure about the strength of Trupanion's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.