As Americans, we all have an almost genetic impulse to root for the underdog. It’s the reason why grown men still cry ugly happy tears when watching the film “Rudy.” With meal-kit delivery specialist Blue Apron (APRN), you can’t find too many public enterprises with Rudy-like qualities. But at more than 43% in the red against the January opener – despite significant efforts of a turnaround – investors must do what’s right for them.
More than likely, doing what’s right involves dumping APRN stock should shares rise into strength for whatever reason. Or, while I’m not recommending it, the most intrepid market participants might consider shorting Blue Apron shares. Unfortunately, APRN has demonstrated little promise for bullish speculators other than to wait for random rumblings. However, these efforts often lack sustaining power, which should embolden the pessimists.
I speak from personal experience. Back in May 17 of this year, I warned investors that it was difficult to trust APRN stock despite a significant lift in sentiment. Around that time, Blue Apron announced that it will pivot to an asset-light business model by transferring its infrastructure technology to FreshRealm, a provider of fresh meals to retailers. In theory, the move should boost the meal-kit specialist’s profitability metrics.
However, based on the details of Blue Apron’s first quarter of 2023 earnings report, service price increases saw average order value and revenue per customer metrics decline conspicuously on a sequential (quarter-to-quarter) basis. Back then, I argued that Blue Apron must engage in sales-versus-profitability tradeoffs to keep the business running. Unfortunately, such tradeoffs would become more pronounced amid troubling economic headwinds.
Nevertheless, shortly after my article was published, APRN stock popped sharply. Eventually, though, the fundamentals began to matter. Right now, shares trade at $5.18, down nearly 22% since the time of publication. Sadly, circumstances may still worsen for Blue Apron.
Options Traders May Be Leery of APRN Stock
Although APRN stock may attract meme traders’ attention, the smart money appears to have wised up regarding Blue Apron’s long-term viability. Following the close of the July 14 session, APRN represented the headline transaction in Barchart’s screener for unusual stock options volume.
Specifically, total volume reached 18,033 contracts against an open interest reading of 67,081. Further, the delta between the Friday session volume and the trailing one-month average metric came out to 1,462.65%. Drilling down, call volume mustered only 401 contracts while put volume clocked in at 17,632 contracts. This pairing yielded a put/call volume ratio of 43.97, substantially favoring the bears.
Interestingly, the put/call open interest ratio presently sits at 0.31, which features bullish implications. Still, investors should be cautious about reading into a single data point. For instance, Fintel’s options flow indicator notes that in the last major transaction, traders sold calls, which symbolizes a bearish tactic.
More tellingly, Blue Apron insiders at scale simply don’t care for their underlying business. Based on insider transactions that go back to July 2017, there were 30 buy transactions. In sharp contrast, insiders printed 179 sell transactions.
To be fair, insiders sell for a variety of reasons so it’s not the most reliable indicator to ascertain forward trajectory. Still at only 30 buys for 179 sells, you can reasonably say that those closest to the underlying business don’t want anything to do with equity exposure. It then begs the question, why should you?
Worryingly, the company needs to turn it up another gear or five, something that it might not have. For example, even with Blue Apron axing its debt, the company still suffers from consistently negative free cash flow. Its net loss metric is moving favorably in the right direction but that’s the thing – we’re still talking about net losses.
Also, its shares outstanding continues to expand, posing possible dilution risk for shareholders. Ahead of trying circumstances, it’s not a great look.
Blue Apron Suffers from Business Replication Threats
Despite the myriad financial pressures impacting APRN stock, investors have already heard of them. However, the biggest threat to Blue Apron may be the most obvious: its business may easily be duplicated by e-commerce firms like Amazon (AMZN).
To understand why, let’s look at Blue Apron’s business. The company offers a subscription service whereby it delivers to signed-on households a kit featuring fresh ingredients along with a recipe to produce culinary delights at home. However, it’s not really saving much time because subs must cook for themselves, which then exposes the business to serious competition.
After all, Amazon also delivers (same day) fresh groceries to your door. And while I’m sure Blue Apron’s recipes are compelling, it’s not as if a quick Google search won’t yield voluminous recipes for whatever you’re seeking to cook up. So, why wouldn’t you just find a recipe online, then go to Amazon and order exactly what you need?
And that’s just Amazon. There are several other options involving both deliveries and in-store pickups that can easily replicate Blue Apron’s business model. Conducted in a larger scale, the replicated approach would probably be much cheaper than the Blue Apron approach. Therefore, I fail to see any competitive edge undergirding APRN stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
