The novel coronavirus pandemic — formally dubbed Covid-19 — has forced consumers across the globe to stay at home. As it has, demand for stay-at-home services has soared, and investors have piled into stay-at-home stocks. In that group, one of Wall Street’s favorites has been Blue Apron (NYSE:APRN) stock.
From a late February low of $2, APRN stock soared 1,350% to a price tag of nearly $29 by late March, on the back of investor optimism that demand for meal-kit delivery services like Blue Apron was soaring as restaurants closed and some consumers shied away from grocery stores.
Blue Apron stock has since given up a big chunk of those gains, exclusively because Wall Street saw the rally as overdone.
But the company did report first quarter numbers recently, which underscored that demand for its meal-kit delivery services is soaring. If this demand surge is a one-time thing, then so is this big rally in APRN stock.
But I don’t think it is. Instead, I see Covid-19 as laying the foundation for a permanent increase in meal-kit delivery service adoption. If so, then APRN stock could soar 300% from here.
A Permanent Acceleration
Here’s the thing about meal-kits: everyone knew what they were, most people wanted to try them, and few people actually did.
According to an NPD survey, nearly 100 million Americans wanted to try meal-kit services in 2019. But for various reasons, Americans simply didn’t get around to trying them. Only 9% of U.S. households — or just over 10 million households — actually tried meal-kit services in 2019.
Then Covid-19 came marching into town. It gave the 100 million Americans who wanted to try meal-kit services a hugely compelling reason to finally try them.
Sure, not all 100 million Americans interested in meal-kit services will test them out during this era. Even further, not all of those who do try it will stick with it after Covid-19 passes and restaurants re-open.
But some will stick. Of those that do, they’ll tell all their friends about the services. Some of those friends will try meal-kit services. Some of them will stick, too.
In other words, meal-kit delivery services like Blue Apron are on the cusp of a permanent acceleration in their growth narrative. Over the next several years, meal-kit services will increase in popularity, sparked by the big Covid-19 catalyst and subsequent word-of-mouth marketing.
Blue Apron Stock to $30?
My modeling suggests that this permanent acceleration could drive Blue Apron stock to prices north of $30 within the next few years.
In the first quarter of 2020, Blue Apron reported 7% sequential customer growth, marking the first quarter of positive customer growth since early 2018, and the biggest quarter of positive customer growth since early 2017. Even further, average revenue per user increased by 1% quarter-over-quarter. Revenues rose, too, for the first time in a long time. Gross margins expanded. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss narrowed.
In other words, everything improved for Blue Apron in Q1. These improvements are expected to accelerate in Q2. Paced by 27% meal-kit demand growth in April, Blue Apron is guiding for nearly 30% sequential revenue growth in Q2 and positive adjusted EBITDA.
Assuming this growth acceleration is permanent, then Blue Apron could realistically add about 100,000 new customers per year into 2025. Average revenue per user will likely grind higher, too, on the back of increased customer engagement. Revenues should rise at a steady double-digit pace. Gross margins should hold steady around 40%. Reduced reliance on paid marketing to drive growth (and increased reliance on word-of-mouth marketing) should drive positive operating leverage and meaningful net profit margin expansion.
Putting all that together, I think Blue Apron has a realistic shot at netting $2 in earnings per share by 2025. Based on a 17-times forward earnings multiple — the five year average multiple for the stock market — that implies a 2024 price target for APRN stock of $34.
That represents about 325% upside from current levels.
Bottom Line on APRN Stock
Blue Apron stock has been one of the biggest losers on Wall Street for the past few years. But, thanks to Covid-19, this company’s fortunes are changing in a big way. Over the next few years, consumers will increasingly adopt meal-kit delivery services, sparked by boosted word-of-mouth marketing as a result of a Covid-19-related demand surge.
As all that happens, Blue Apron’s customer base and revenues will grow. Margins will expand. Net losses will turn into net profits. And APRN stock will soar.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.