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Added 11% more shares at $24.50 on 5/3 after they fell 23% post-earnings
Metrics at the time of buy:
P/S - 2
P/GP - 5
P/FCF - negative
Price of my benchmarks at the time I made the purchase:
$SPY - 411.92
$QQQ - 320.27

Exited my entire position this morning after a truly awful quarter, a recent exodus of management (two CFOs in as many years, two EVPs, a board member, and the founder/CEO planning to leave in 2025), a record low guidance, management struggling with the loss of a major underwriter, margins under heavy pressure and management saying it'll take 12-18 months to get back to 15% gross margins even though they have historically been at 17%+. Just all around disorder in their house.

Yet part of their 60-month plan, announced in 2021, is to expand internationally, add a pet food segment, and a GPS pet tag. They also acquired a SaaS company that they used to partner with Aflac and Chewy for pet insurance... but admitted that they are behind on both time and budget in that initiative. I'll give bonus points for honesty but this is just poor execution: "We now expect the build to be completed in 2023, over a year behind schedule, and significantly over-budget. By the time we come to market on the platform, we will have invested approximately $22 million more in capitalized software investments than we initially budgeted for."

Let me remind you that Trupanion has never posted a profit in their public lives. Further, in their 9 public years, they have a grand total of negative $19M in free cash flow. So they buy this company for $48M and go over budget by $22M. Not great.

On the pet food expenditure, management stated in their recent 2022 Shareholder Letter, "The biggest investment was in equity of a small therapeutic pet food company working to develop a portion controlled, direct-to-consumer monthly subscription wellness food." They later mentioned the CEO attended the first pre-production manufacturing of this company's food formula. He added, "Fingers crossed that like my earlier WD-40 example of innovation (2016 shareholder letter), we end up with a new product that is difficult to emulate and that will significantly improve the health of the pets we love so much." Fingers crossed? Really?

On the GPS tag that they've invested funds into, "Efforts on our GPS tag have stalled as we wait for technology to catch up with our intent—this means our patent-pending working prototype device will need to reduce in size and cost before we develop this further." Cool cool cool. Meanwhile, I have a $29 Apple Tag on my dog and it works flawlessly so what exactly will this Trupanion GPS tag do that existing technology can't cover? How expensive will it be if it needs advanced technology? Why will anyone buy is over an Apple Tag or a Tile?

He wrapped up this section of the shareholder letter by saying, "For these reasons, we feel that the collective $121 million investment we have made over the past two years with shareholders’ money to be well thought out. I don’t expect every investment will work, but in no single investment have we bet the farm either! Relatively speaking, we’ve made a handful of smaller bets that will undoubtedly provide us the opportunity to learn, innovate and become a much bigger, more defensible company as a result."

I couldn't disagree more. To me, it feels like management has recognized they can't compete with larger insurance companies who offer pet insurance (I got quotes on both of my 2 cats and my dog through the insurance at my wife's job, Lemonade, and Trupanion. Guess which one was the most expensive each time.), profitability is proving difficult to reach when their gross margins are so low, and management is flailing with these bets. Meanwhile, inside ownership has fallen from 31% in 2016 to 5.8% at the end of 2022. 5.8% isn't awful but it also doesn't instill a lot of confidence in me as a shareholder. So now I'm a former shareholder.

My final results:
Time held: 3.01 years
Total Return: (53.8%)
$SPY Total Return: 20.3%
$QQQ Total Return: 16.5%

Moving on, I've been watching ACM Research for a couple months now and decided about a week ago to buy calls that expired after their recent earnings. I wanted some skin in the game while waiting to see if earnings reinforced my conviction to open a position.

I bought calls at $0.65 with a $10 strike that expired 5/19. Earnings this morning were excellent and I closed those calls at $1.01, a tidy 52% gain in 10 days.

I also opened a new position in ACM Research. Yeah, it would've been cheaper if I just opened the position instead of buying calls 10 days ago but c'est la vie.

ACMR is part of my slow push into more well-executing small caps companies. The other two I've purchased under this guise are $PERI and $INMD, purchased back in Sept 2022. My intention is to not sell these for at least 10 years (barring something like corporate fraud). Set it and forget it. A kind of coffee can approach as discussed in The Coffehouse Investor.

New position at $10.67
Metrics at the time of buy:
P/S - 2
P/GP - 3
P/FCF - negative
Price of my benchmarks at the time I made the purchase:
$SPY - 410.97
$QQQ - 321.24

Lastly, I made a rare move of paring a position. I almost never sell part of a position. It's either all or none. However, Shopify has performed so excellently lately and considering my average purchase price is $10.89, I felt comfortable taking a portion off the board so I could allocate it to smaller cap companies (like $ACMR).

Sold 13% of my shares at $59.82. My break-even price is now $3.56/sh.
Metrics at the time of sales:
P/S - 13
P/GP - 27
P/FCF - negative
Price of my benchmarks at the time I made the purchase:
$SPY - 410.88
$QQQ - 320.83

Steve Matt's avatar
Steve Matt
@interrobangbrosMay 5Author
@tomato @from100kto1m Wrote up my $TRUP thoughts in more detail here.
Yegor's avatar
@from100kto1mMay 5
@interrobangbros thank you for sharing your thoughts on $TRUP
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