A collaboration with Amazon (NASDAQ:AMZN) should rescue any company from its financial problems, right? Not necessarily, as Blue Apron (NYSE:APRN) sealed a deal with the e-commerce behemoth but hasn’t returned much value to its shareholders. Furthermore, despite its short-squeeze potential, some big-money traders seemingly expect APRN stock to continue on its downward trajectory.
Headquartered in New York, Blue Apron is known for delivering meals and meal kits to people’s doorsteps. This business model probably made perfect sense in 2020 during the onset of the Covid-19 lockdowns. Consider, however, that the Blue Apron share price has fallen from $16 in mid-March of 2020 to around $2 recently.
This must mean that the stock is a terrific bargain — or not. As it turns out, a number of institutional investors are apparently bracing for APRN stock to lose even more of its value.
These 5 Big Investors Are Betting Against APRN Stock
Bear in mind, there’s more than one way to bet against Blue Apron. The most direct method would be to simply short-sell the company’s shares.
However, it’s also possible to purchase put options on APRN stock. This is a less direct way to express a belief that the share price will decline by a certain date.
With that in mind, let’s take a glance at some big investors that are evidently taking sizable positions against Blue Apron.
- Simplex Trading used put options to, in effect if not directly, hold a short position totaling 99,200 APRN stock shares, as of Nov. 4, 2022.
- As of Oct. 25, Cutler Group effectively held a short position of 23,900 Blue Apron shares through the use of put options.
- National Bank of Canada certainly seems bearish as it maintained an effective short position of 1,250 APRN stock shares through the use of put options, as of Oct. 13.
- As of Aug. 26, a subsidiary of Blackstone (NYSE:BX), Blackstone Alternative Investment Funds, had a direct short-share position (no put options, this time) totaling 1,200 Blue Apron shares.
- In addition, Prelude Capital Management utilized put options to build an effective short position amounting to 26,000 shares of APRN stock as of Aug. 24.
It’s Too Risky to Hold APRN Stock in Hopes of a Short Squeeze
Some folks might be tempted to join these five big-time investors with short positions against Blue Apron. I can’t recommend this strategy, though. If there’s a fluke and somehow Wall Street decides to favor Blue Apron, the share price could jump and short positions can theoretically incur unlimited losses.
Yet, it’s also risky to hold a long position in APRN stock. Granted, the potential losses are limited if you simply buy the shares. However, there are too many reasons to doubt that Blue Apron will become a darling of the markets.
For one thing, Blue Apron isn’t afraid to sell shares in order to raise capital. This is evident as the company sold 4,622,272 million of its shares recently. Investors might wonder whether Blue Apron will sell more shares in the near future, thereby raising dilution concerns.
Then there’s the inflationary headwind that Blue Apron will have to deal with. Indeed, InvestorPlace contributor Thomas Yeung issued a dire prediction:
“Consumer belt-tightening, high inflation and declining meal delivery interest mean Blue Apron will struggle to produce even $500 million in revenue [for 2022]. And unless the firm’s cash generation improves, management will likely find themselves bankrupt by 2024.”
Moreover, even a deal with Amazon couldn’t prevent APRN stock from declining. On Oct. 11, Blue Apron announced that customers could now purchase the company’s meal kits in the U.S. Amazon store without a subscription.
As of early November, Blue Apron shares actually lost value since that announcement. And if an Amazon collaboration can’t convince people to invest in Blue Apron, that’s definitely not a good sign.
Just Stay Out of the Trade
It’s too risky to short-sell APRN stock directly, and a positive surprise could vaporize the value of put options. On the other hand, there are compelling reasons not to take a long position in Blue Apron shares.
Thus, the best course of action is no action at all. Feel free to cook up a nice meal — one from Blue Apron, perhaps — and watch from the sidelines as speculators battle each other from both sides of this risky trade.
On the date of publication, David Moadel did not have (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.