In a recent article, I referred to Blue Apron Holdings Inc (NYSE:APRN) as a “recipe for shareholder starvation.” At the time of publication, APRN stock had fallen into the mid-$3s. Since then, it’s flattened out in the low $3s. Unfortunately for investors who stayed in this stock, the same problems still exist. Given the intense competition and the lack of a moat or any pricing power, I still recommend investors stay away from APRN stock.
With the APRN stock price in the low $3s per share, its behavior becomes difficult to predict. Our own Ian Bezek warns short sellers could find themselves getting squeezed. That scenario remains possible. Still, the general trend remains one of decline. In 6 months, 12 months or 5 years (if the stock still exists), I believe APRN stock will trade at a much lower price than today in each of these time periods.
Blue Apron Faces Overwhelming Competition
The most important reason for this remains APRN’s lack of a moat. Anyone with available food and creative recipes could copy this business. As my colleague Luke Lango points out, Amazon.com, Inc. (NASDAQ:AMZN) alone has the power to outcompete Blue Apron. However, it remains only one of many threats. HelloFresh SE (ETR:HFG), along with Amazon and other firms, also compete in the meal kit industry.
Moreover, most analysts would classify meal kits as a segment of the grocery industry, which remains challenging. Even large players such as Kroger Co (NYSE:KR) and Costco Wholesale Corporation (NASDAQ:COST) have to cut prices and innovate to stay competitive.
Balance Sheet Issues Also Plague APRN Stock
With this competition, profits have and will remain an ongoing struggle. Over the course of the year, gross margins have shrunk. Between the last earnings report and the year-ago quarter, revenue rose by only $6 million, while the cost of revenue went up by $18 million. This has left gross margins hovering a little over 20%. These gross margins are not enough to cover selling and administrative expenses. With little room to increase prices or cut overhead and sales, seeing a path to earning a profit remains difficult.
Also, for two quarters this year, the current ratio fell below 1. This means APRN’s current liabilities were higher than its current assets. Thankfully the IPO brought in some much-needed cash which pushed the current ratio above 1.
Due to the increase in current assets, Blue Apron will have little trouble meeting current expenses… for now. Unfortunately, with losses predicted every quarter into the foreseeable future, the current ratio may again reach dangerously low levels.
Concluding Thoughts on APRN Stock
Intense competition and lack of a moat place APRN stock in a dangerous position from which it probably cannot escape. Numerous players, both large and small, operate in the meal kit business. Additionally, small players or companies in the closely-related grocery business can also start a meal kit operation. Even large players with more resources must cut costs and innovate to compete. This leaves little room for small players like Blue Apron.
The metrics of APRN stock show the difficulty in stark terms. The company’s inability to increase prices or reduce costs substantially has cut off any visible path to positive earnings. Gross margins also remain small.
Although the current ratio gained a reprieve with the IPO, fewer options exist to keep that current ratio above 1. Further, forecasts into 2020 show the company will not achieve profitability for years — if it happens at all. Given the extreme pessimism, a contrarian bounce in the stock remains possible. However, the long-term trend in the stock indicates further downside.
Considering the financial and market conditions, I’ll again assert my feelings about APRN with the paraphrased proverb I used in my previous article:
“The best time to sell APRN stock is the IPO day. The second-best time to sell APRN stock is right now.”
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
