Blue Apron Holdings Inc. (NYSE: APRN) stock has been trading for about a month, and a slew of bullish Wall Street ratings and Blue Apron stock price predictions were just released. However, Money Morning experts believe those predictions are dangerously wrong…
The meal-kit delivery service stumbled as a public company right out of the gate with a stock issue price some 40% below estimates. That was thanks in part to the giant Amazon.com Inc. (Nasdaq: AMZN) announcement that it will buy Whole Foods Market Inc. (Nasdaq: WFM) released nine days earlier. And when Blue Apron stockstarted to trade, it almost immediately began to slide lower.
From its June 29 debut at $10 per share, its price tumbled 35%.
Analysts, however, see investors changing their views on the company even with competition from Amazon. According to data from MarketWatch, Blue Apron now enjoys seven “Buy” ratings and four “Equal Weight” ratings. Only one analyst in the group maintains a “Sell” rating.
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After the analyst reports were released July 24, the Blue Apron stock pricesurged as much as 20% in trading to a high of $7.86. That’s more than 26% higher than its lowest traded price of $6.23 set on July 18.
Could this stock have bottomed? Some of the analysts wrote that “the opportunity for the company is huge” and “expect market conditions to improve,” alluding to the fact that competition is expected to consolidate in the industry.
However, Money Morning Capital Wave Strategist Shah Gilani has been warning investors to avoid Blue Apron stock even before the company went public for many reasons.
Blue Apron’s business model of delivering prepackaged ingredients and recipes to subscribers’ doorsteps sounded sexy. The theory was sound, especially as it was supposed to disrupt traditional grocery shopping and pose a new challenge to restaurant businesses.
But there are theories, and then there’s reality…
These Blue Apron Stock Price Predictions Ignore One Glaring Problem
The company is not profitable. It never has been. And according to filings with the U.S. Securities and Exchange Commission, Blue Apron lost $54.9 million in 2016, even though revenue more than doubled to $795.4 million.
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Even before its ill-fated entrance into the market, rumors were circulating. Bloomberg Technology recently wrote that “Blue Apron had sought additional available credit before the initial public offering, according to people familiar with the matter. Some firms declined to lend the company money because it was seen as too risky, while others weren’t willing to extend as much as was requested…”
Apparently, going public was a necessity. That’s never a good reason.
Gilani recently appeared on FOX Business Network‘s “Varney & Co.” and didn’t mince words. He pointed out how Amazon is monumentally ramping up its grocery business with the Whole Foods acquisition, and its likely entry into the meal-kit delivery business would be a potential game changer.
But it gets even worse…
Company filings show how Blue Apron is losing subscribers at an alarming rate. Even Gilani is in the ranks of former customers who have recently cancelled their subscriptions. It’s a big problem.
According to a survey of 45,000 meal-kit subscribers by Cardlytics in 2016, after one month, the retention rate was only 77%. After six months, the retention rate dropped to 48%. And after one year, only 29% of subscribers were still on board.
With the cost of acquiring new customers to replace the old soaring, the situation seems grim.
Further, management seems intent on keeping tight control on the company with several classes of shares with different voting rights. Who dominates the voting shares? Management. How convenient.
The way Gilani sees it, the only hope that shareholders and the company have is if Blue Apron is eaten by someone else.
Don’t believe the hype being pushed by Wall Street analysts. This stock is going nowhere.
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