After a rollercoaster Q4 for meal-kit company Blue Apron (NYSE:APRN), prospects are up for the company. APRN stock is up more than 3% heading into market close after Citron gave the direct-to-consumer business a strong buy rating.
What’s behind Citron’s latest advocating report?
Citron pulls no punches in its presentation backing its whopping $40 price target. The research company claims the food industry has the potential to beat out the metaverse, crypto and electric vehicles (EVs). They even quote a lofty tweet from investor Joe Sanberg on the meal service company: “Blue Apron is going to prove to be one of the greatest corporate turnaround stories of this century!”
The basis of their bullishness? Strong fundamentals and rising food costs. According to Citron, the benefits of going to the supermarket for food “is making less and less sense.” A recent survey from KPMG on food costs backs its claim. Apparently, roughly 61% of those surveyed intend to use meal kits more often in 2022. This comes as grocery store costs are estimated to increase by nearly 15% this year.
To add to the consumer trend, Blue Apron frequently tops many meal kit reviews in terms of quality, price and ease of use.
This isn’t the only logic behind Citron’s prediction, however.
Citron Claims APRN Stock Is Blatantly Undervalued
After opening at $140 in 2017, Blue Apron has seen its stock price progressively decline. APRN has dropped as low as $3.52 per share, and even after a strong performance today, it is only at $7.90. As such, “bullish” hardly encapsulates Citron’s $40 price target.
Citron claims that compared to other similarly popular meal-kit services, Blue Apron’s market capitalization doesn’t come close to measuring its potential. For example, industry leader HelloFresh (OTCMKTS:HLFF) is valued at more than $10 billion, compared to APRN’s $160 million. Citron argues that Blue Apron enjoys higher margins and increased usage from customers than HelloFresh.
Additionally, Citron believes its recent management changes reflect a complete restructuring of the company’s business model, for the better.
“Blue Apron was not able to grow proportionally during the pandemic because previous management ran the company into the ground as they focused more on building the infrastructure and did not focus on customer acquisition costs. This left them with little cash going into 2020. All that has changed and the terms are meaningful.”
Citron’s report prompted an immediate jump for the meal-kit service. Notably, the company is still trading below even last month’s high of $12.80. Whether APRN makes the climb to the levels Citron predicts remains to be seen.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
