Ideally, growth stocks are supposed to, well, grow. But that doesn't always happen.
Sometimes, even the best stocks experience steep downturns. The good news is that these sell-offs present great opportunities for forward-looking investors. Here's one growth stock that's down 66% to buy right now.
For the dogs
Trupanion (TRUP -2.34%) has been a stock for the dogs lately. Its shares have plunged throughout much of the last 12 months.
One big problem for Trupanion is that it badly missed analysts' earnings expectations with its first-quarter results. The company posted a net loss of $0.60 per share, while the average analysts' estimate was for a loss of $0.29 per share.
Trupanion's business is literally for the dogs -- and cats, too. It ranks as one of the top pet insurance stocks. The company offers medical insurance for cats and dogs in the U.S., Canada, Europe, Australia, and Puerto Rico.
A key challenge for Trupanion, though, is that veterinary inflation has soared. As a result, the company's margins have fallen. Of course, this has caused Trupanion's bottom line to deteriorate.
Why Wall Street is still bullish
You might think that analysts would be tempted to throw in the towel on Trupanion. However, that's not the case. The average 12-month price target for the stock reflects an upside potential of 45%. The most optimistic analyst thinks that Trupanion's shares can nearly double over the next year.
Why are some on Wall Street so bullish about the stock? The following chart explains much of the optimism.
TRUP Revenue (TTM) data by YCharts
Trupanion's revenue continues to soar, jumping 24% year over year in Q1 to $256.3 million. The company's total enrolled pets vaulted 28% higher to over 1.6 million.
A nice catalyst could also be just around the corner. Trupanion's joint venture with Aflac in Japan is scheduled to shift into gear in the second half of this year.
Also, while rising inflation hurt Trupanion's bottom line in Q1, it could end up helping the company going forward. The company's president, Margi Tooth, noted in the Q1 conference call that Trupanion's biggest competitor is self-insurance. Soaring veterinary costs could make it harder for pet owners to pay for unexpected health problems for their pets. That could make Trupanion's insurance more attractive than ever.
Huge long-term opportunities
Will Trupanion stock really skyrocket 45% over the next 12 months as the average Wall Street price target reflects? I don't know. What I do know, though, is that the company has huge long-term opportunities.
Only around 2% of cats and dogs in North America are covered by pet insurance. That's much lower than the 25% penetration level in the U.K. and leaves plenty of room for Trupanion to grow and gain market share.
Trupanion's acquisitions have doubled its addressable market by adding several new countries: the Czech Republic, German, Slovakia, and Switzerland. The pet medical insurance market is greatly underpenetrated in all of these countries.
Although Trupanion does face some competition, it continues to boast a strong moat. The company offers the broadest coverage for pets. It's the only pet insurer with software that allows veterinarians to receive direct payments at the time of checkout. Unsurprisingly, Trupanion ranks as the largest medical insurer for pets in North America.
Pet ownership is likely to increase over the long term. More people are working from home, which allows them to care for their pets more easily. Aging demographic trends could drive pet ownership as well, with studies linking pet ownership to improve health outcomes in seniors.
Trupanion hasn't been the kind of growth stock that investors like in recent quarters. But it could be one that they could love over the long run.
