Amid the novel coronavirus pandemic, Blue Apron (NYSE:APRN) stock is up 74% year-to-date. I think that the rally is overdone and that the shares of the meal kit deliverer will likely retreat after the company reports its first-quarter results on April 29.
Blue Apron stock shares will probably fall further in May and June if more restaurants open by then, shortages of fresh products at grocery stores ease, and fear of the coronavirus drops.
But if by then the shares retreat to their December 2019 levels of around $6.50-$7.50, I think medium-term investors should take a small position in the stock. That’s because I believe that, until a coronavirus vaccine is rolled out, Blue Apron’s customer base is likely to be meaningfully larger than its pre-pandemic levels.
Blue Apron Stock Rally Was Overdone
As multiple other pundits pointed out, Blue Apron’s financial results have been pretty dismal in recent years, and it’s facing a great deal of competition.
Specifically, the company’s revenue was $881 million, $668 million, and $455 million in 2017, 2018, and 2019, respectively. Further, its net income came in at -$61 million in 2019.
But that was much better than the $122 million that the company lost in 2018. Blue Apron managed to cut its losses last year by reducing its costs tremendously. After so much cost-cutting, however, it will probably not be able to reduce its expenses much further.
In addition to the competition that Blue Apron faces from those meal kit deliverers, it also has to worry about losing market share to grocery store delivery services like Peapod and Instacart.
Given Blue Apron’s declining revenue totals before the pandemic, its lack of profitability, and its tough competition, I think the tremendous rally of APRN stock is overdone.
Further, as fears of the virus ease and the lockdowns in many parts of the U.S. relax, these factors will also start to hurt the company’s results. By the beginning of May, those catalysts will also begin to weigh on Blue Apron’s shares.
Fears of the Coronavirus Are Declining, Lockdowns Could Soon Ease
In previous columns, I’ve identified evidence that Americans’ fears of the coronavirus are easing. Specifically, protests against the lockdowns have broken out in multiple states and there’s anecdotal evidence that traffic on the roads in some cities has increased.
And in another trend that will result in Americans going out more, many states look poised to meaningfully relax their lockdowns in May.
With hundreds of restaurants reopening and attracting more customers as fears subside, the revenue surge that Blue Apron has experienced during the crisis will decelerate.
Blue Apron Will Continue to Have Value for Some Consumers
Many Americans should and will stay home as long as the risk of catching coronavirus remains high. Those over 60 years old, obese people, and individuals with respiratory illnesses and diabetes, for example, will be advised to continue to stay home because they have a higher chance of dying from the illness. Most at high risk will indeed do the right thing and avoid going out as much as possible until the threat drops tremendously.
Meanwhile, a meaningful number of low-risk individuals who remain afraid of the virus will also stay home.
Some of the people in those categories will hold onto the Blue Apron subscriptions they bought when the pandemic was at its peak. That’s because, for homebound people who enjoy cooking and are seeking convenience, Blue Apron offers good value.
Specifically, picking out, say, 15 ingredients on an online grocer’s website can easily take ten minutes. Taking the ingredients for a recipe out of grocery bags and putting them together could take about five minutes. Finding, printing, or e-mailing a recipe can take another five or ten minutes.
Blue Apron provides ingredients and recipes in one package, saving its customers a meaningful amount of time and effort. To consumers who are not too busy and/or don’t value convenience much, the time that Blue Apron saves may not seem significant. But others will be willing to pay for the ease of use that the company provides.
Finally, from my perspective, one of the worst parts of the quarantine is the monotony of it. Going through the same routines over and over gets incredibly boring. Blue Apron provides its customers with a small change; instead of ordering in meals or cooking food obtained from grocery stores, Blue Apron’s customers can utilize the company’s ingredients to cook a meal.
The Bottom Line on Blue Apron Stock
In light of Blue Apron’s falling revenue before the outbreak and the company’s tough competition, the rally has likely been overdone. Also making me bearish on the stock is the fact that the crisis will likely ease soon.
Given all of these points, Blue Apron will probably drop after the company reports its results on April 29. The share price will likely continue to fall in May as the crisis eases.
But, because of the product’s attractiveness to some housebound consumers, I do believe that Blue Apron’s customer base will still be meaningfully higher in June and July than it was in December and January. As a consequence, I recommend that investors buy the shares in May and June if they drop to their December levels of around $6.50-$7.50.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned stocks.