Where next for the share prices of Blue Apron and HelloFresh?
Meal-kit delivery firms HelloFresh and Blue Apron have seen share prices soar recently after reporting stronger demand as people try cooking at home during the coronavirus crisis. But have their valuations been over-stretched?
While most businesses and industries are suffering from the coronavirus outbreak there are some pockets of resilience. One type of company to have seen a boost in demand are those supplying recipe and ingredients kits that allow people to cook more exotic dishes at home.
While takeaways and food delivery platforms have also seen a rise as more people ship-in food while they stay at home, more people are cooking for themselves and looking for ways to get the ingredients they need to make more exciting dishes. These meal-kits, as they are better known as, are delivered straight to the door of the customer each week and provide the exact quantity of food needed to make home-cooked meals from scratch.
Two of the largest publicly-listed players – HelloFresh and Blue Apron - have seen their share prices rise as investors bought into anticipation that demand would increase, and that theory has recently been proven true after both stocks reported a jump in sales.
HelloFresh shares have gained almost 40% while Blue Apron has more than tripled in value over the last month. Having booked such large gains in such a short period of time, there are questions over their valuations and whether the rise in demand will be sustained once the coronavirus outbreak has ended.
HelloFresh is one of the largest meal-kit companies in the world, serving the US, much of Europe, Australia and New Zealand. Although it is based in Germany, the company’s key market is in the US where it makes over half of its revenue, has 3 million customers and is the market leader with a 28% market share, according to Statista. It has around 1.8 million more customers in the other countries.
On 30 March, HelloFresh said the strong growth it had seen in January and February had ‘started to see a further meaningful acceleration since the latter half of March 2020, driven by increased demand due to the heightened public focus on the evolving COVID-19 pandemic’.
As a result, the company said it expected to beat expectations in the first quarter (Q1) of 2020. It is expecting quarterly revenue to total €710 million – a surge of 69% from the €420 million reported in the same quarter last year. Earnings before interest, tax, depreciation, amortisation (EBITDA) and other one-off costs will be between €55 million - €75 million, swinging from a €26.1 million loss the year before. The exact outcome will become clear when it releases its Q1 results on 5 May.
This would imply that the longer countries have lockdown and social-distancing measures in place, the longer the boost to sales and earnings will last for HelloFresh. Still, the company has been cautious and left its full-year guidance unchanged for 2020, although many will welcome the fact it can provide any guidance at all amid the current uncertainty hitting most businesses.
The timing of the increase in demand will be welcome considering HelloFresh reported its maiden annual profit (in terms of adjusted EBITDA) in early March and said 2019 was its ‘most successful year ever’.
HelloFresh share price: technical analysis
The coronavirus crisis has proved to be a boon for HelloFresh’s stock, but it has not been immune from the general market volatility. The stock has jumped to a record high above €30, having dropped to €16 in mid-March. This higher low marked the first real sell-off since October 2019, and while it neared the 200-day simple moving average (SMA), it did not break below this. This clear sign of strength was followed up by an impressive bounce which has cleared the way for new highs, breaching the previous peak at €26. A pullback towards this level might provide a fresh buying opportunity.
Blue Apron only offers meal-kits in the US and is just behind market leader HelloFresh with a 22% share of the market. The company is not doing as well as its German rival: Blue Apron reported steep declines in revenue in 2019 and remained loss-making, even if those losses narrowed from the year before. It is also reviewing the business at present to turn things around and said it is open to a takeover or merger while warning it may also sell-off parts of the business or have to raise cash from shareholders.
The situation had pushed Blue Apron shares to an all-time low of $2.28 per share on 13 March, but then soared to a new all-time high of $16.25 on 18 March. The high came after chief executive Findley Kozlowski said the firm had seen a ‘a sharp increase in consumer demand’. It said it was increasing capacity and hiring more staff to meet the new demand.
Still, like its German peer, Blue Apron has been cautious in getting investor’s hopes up that the surge in custom will be sustained over the long term. ‘Like other companies, we are operating with imperfect information around COVID-19 and its impact on our business. Nothing in this statement should be viewed as guidance or a prediction about current or future performance of the company as the situation remains very fluid and various matters could affect our ability to serve our customers. We are doing our very best to manage through these unprecedented circumstances,’ Kozlowski said.
Blue Apron share price: technical analysis
The stock market has witnessed a remarkable change for Blue Apron, as the stock price, which had been going one way from its initial public offering (IPO) in 2018, staged a huge rebound. While it has dropped equally quickly, moving from $25 to $10 within a few sessions, it appears to have found a floor at $10, although gains have been held below $13. A break above this level provides a fresh bullish signal, while a drop below $9 reverses the near-term bullish view.
HelloFresh vs Blue Apron: where next for share prices?
Both HelloFresh and Blue Apron look like they will be among those that could see strong demand while the coronavirus outbreak continues and countries keep social-distancing and lockdown measures in place. Considering the US, the key market for both stocks, still has a long way to go before the country is in a full lockdown means the uptick in demand should continue accelerating over the coming weeks and months.
Currently, HelloFresh shares are trading 26% higher than the current target price of €24.30, while Blue Apron shares are currently worth almost double their target price of $6. The big question is whether the higher level of demand will become the new norm after the coronavirus has been defeated or if it will fall back to pre-crisis levels. If it is the latter, then the spike in the share prices of both stocks could put them in a precarious position and make them attractive to short.
The timing of the outbreak could be vital for both companies. HelloFresh has just turned its first annual adjusted earnings but still needs to escape the red at the bottom line, and a spike in demand over the forthcoming weeks and months will ensure it beats its most successful year ever in 2019 – even if it is temporary. For Blue Apron, the outbreak could prove to be the saviour of the business. It was evaluating its options on how to turn the company’s fortunes around less than a month ago, and now it is hiring new workers and expanding capacity. However, investors will need convincing that any short-term revival in the business can solve its underlying problems.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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