Blue Apron Holdings Inc (NYSE:APRN) has trended downward since its initial public offering (IPO) on June 29th. APRN is a holding company which provides fresh ingredients and recipes to consumers for home cooking. Since debuting at $10 per share, the APRN stock price has fallen by more than 60% since its IPO four months ago.
Now, following a drop after its second earnings report in its history, prospective buyers must decide whether this is a bargain in waiting or a falling knife. Given the financials and its competitive situation, APRN stock will likely have trouble serving up gains.
APRN Stock Likely to Fall Further
To paraphrase an often-repeated Chinese proverb: The best time to sell APRN stock is the IPO day. The second-best time is right now.
Personally, I’ve never ordered nor eaten anything served by Blue Apron. Its food may well help serve excellent meals. If the food offerings are truly something irreplaceable, I urge people to spend more at Blue Apron and encourage all of their friends to do the same. Unfortunately, for holders of this stock, the food is likely the only thing going for APRN and its stock.
Blue Apron released its second earnings report before the market opened on Thursday, November 2nd. The company missed earnings with a loss of 47 cents per share, 5 cents below estimates. Given the continuing losses, stockholders have little reason to expect news of a company turnaround.
Poor Financial Health for Blue Apron
One reason for this decline has to be its troubled financial metrics. Most every financially healthy company has a current ratio of one or above. This means the current assets are greater than the current liabilities. This metric serves as an indicator of whether a company can pay its bills. The current ratio of APRN stood at just over 0.52 as of its last earnings release.
The statement of cash flows of APRN stock confirms this troubling metric. Both the cash from operating activities and the cash from investing activities are negative. The only positive cash figure in the statement comes from the “other financing activities” line item. This means the company borrows money just to meet its immediate expenses. Consensus EPS forecasts show the company losing money until 2020 when APRN analysts expect the company to break even.
The current market capitalization of APRN stock stands at around $700 million. As of the end of the second quarter, the company carried about $157 million in both short- and long-term debt. The company has 30.04 million shares outstanding. Analysts predict a loss of 26 cents per share for the next quarter.
This adds up to almost $20 million in borrowing simply to pay its bills for the rest of fiscal 2017. Note, that figure does not include borrowing to meet its other needs. Although the future remains uncertain, a trend of higher debt and a lower stock price will not help investor confidence.
APRN Has No Leverage Over Potential Competitors
Worse, competitive realities spell trouble for the company. While APRN’s food may well be delicious, its product offering represents a thin moat. Competition from Amazon.com, Inc. (NASDAQ:AMZN) could present a threat to its existence. Now that Amazon owns Whole Foods, Amazon has the ingredients readily available to compete directly.
Amazon is not the only threat. No barrier exists to stop a Costco Wholesale Corporation (NASDAQ:COST), or for that matter a Sprouts Farmers Market Inc (NASDAQ:SFM) or Kroger Co (NYSE:KR), from offering customers the same thing. Although APRN may serve as a buyout prospect for its infrastructure, a company could pick that up more cheaply if APRN stock is forced into bankruptcy.
Stockholders who bought APRN stock hoping to feast on profits should prepare for hunger pains instead. With another loss and earnings miss reported, debt is expected to mount, and the quarterly report contained no news that changed the stock’s situation. Moreover, with its inability to stop an Amazon or other grocers from competing, APRN appears to have little ability to stop the decline. Unless management serves up a path to competitive advantage and financial stability, APRN stock will lead to starvation regardless of any future quarterly numbers.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.