Personally, I view Blue Apron (NYSE:APRN) as an example of getting the logic right and the results wrong. In August of 2019, I worried that a recession might hurt shares of the meal-delivery service. I came to that conclusion because at the time, the U.S.-China trade war suggested a slowdown for both economies. Further, the Federal Reserve appeared ineffective in mitigating the situation. Therefore, Blue Apron stock appeared too risky.
Up until mid-March of this year, I was proven correct. However, everything changed on the March 16 session as shares exploded higher. As InvestorPlace web editor Nick Clarkson explained, the dramatic spread of the coronavirus from China drove sentiment toward Blue Apron stock. With social distancing becoming the new normal, any effort to bring necessary items by mail was a viable opportunity.
A few days later from that pivotal session, California issued a mandatory stay-at-home order. In an unprecedented move, California Governor Gavin Newsom basically took matters into his own hands. At the time, federal leadership appeared confused at best. With this decision, Newsom may have prevented California from going over the edge.
At time of writing, California has just under 10,000 coronavirus cases, while hard-hit New York has nearly 84,000. Indeed, history may look favorably on the governor.
However, this mandatory order didn’t come without consequences. With all non-essential businesses temporarily closed, the true economic impact may be utterly devastating. However, as Clarkson argued, this is the opening that Blue Apron stock needed.
People sheltered in place represents a hostage audience. Further, because venturing outside risks exposure to the virus, APRN’s meal delivery service appears the perfect solution. But looks can be deceiving.
Blue Apron Stock Is a Classic Bull Trap
Before I get into why I’m negative on Blue Apron stock, I acknowledge the tempting bull case. Aside from exposure risk, Covid-19 has sparked mass panic. Right now, people are not acting rationally. Furthermore, with record job losses over the horizon, this will add to the collective strain.
What I’m getting at is that already violent Americans will become even more violent. Frankly, it’s no coincidence that firearms manufacturers Sturm Ruger (NYSE:RGR) and American Outdoor Brands (NASDAQ:AOBC) have recently enjoyed positive momentum.
Unlike guns, though, the sudden catalyst for Blue Apron stock – i.e. the coronavirus – will eventually disappear. Based on some of the latest reports, the outbreak here could affect us for four months or longer. But like any health crisis, the virus will pass.
When it does, what are you left with? Prior to the mandatory shutdowns, APRN was a wildly risky organization. A few months of sales surges can’t undo years of declining revenue and consistently negative net income.
More importantly, I don’t see Blue Apron having consecutive months of meaningful sales increases. Primarily, APRN is a pure bull market stock. Simply put, the company’s products are too expensive.
From their website, a two-serving vegetarian meal package costs just under $60 a week. If you were to buy it for the full year, we’re talking $3,120. Contextually, it’s not bad if we were living in a bull market. However, only a brave soul would deny that we’re careening toward a recession. In this scenario, that $60 a week can be put to far better use.
And consider Kroger (NYSE:KR), which is heavily marketing its delivery and online order pick-up services. When funds are tight, your money will go much further at Kroger and they offer similar conveniences.
No Room for Luxuries in a Recession
Another problem that I have with Blue Apron stock is that the underlying business is almost a pure luxury play. Bluntly, this is a service for people with vast amounts of disposable income. And that’s why your typical Blue Apron customer is older.
Let’s just look at the situation here. The appeal for this company comes from the concept that you can quickly prepare healthy gourmet meals at home. However, the packaged meals still require some minimal preparation for best results, which somewhat defeats the purpose of having someone else cook your food for you.
To be fair, you’re getting amazing food for a minimal time investment. That alone and without any other context may appeal to millennial foodies. But as I mentioned above, the cost is prohibitive, especially in this compromised economic environment. Furthermore, what do people have plenty of right now? Time.
Thus, the bear case comes down to a very rational, logical deduction: a poor economy plus deflated personal funds but time to spare incentivizes traditional grocery shopping. In turn, Blue Apron can only market its products to very financially secure families. And right now, that demographic is steadily declining.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.