<p>The new coronavirus outbreak – formally known as COVID-19 – has been bad for almost every company in the world. After all, the virus keeps billions of consumers around the world at home, and has also stopped the global economy. Against this background, 30% of the share price since mid-February is completely meaningful.
Then there are food delivery warehouses.
Food delivery stocks have largely reversed the broader market trend over the past month. Instead of collapsing like pretty much every other stock out there, food supply stocks have accumulated. Just look at these three food delivery stocks that exploded higher in 2020 in the coronavirus panic:
Blue Apron (NYSE: APRN) + 120% Year to Year Waitr (NASDAQ: WTRH) + 750% HelloFresh (OTCMKTS: HLFFF) + 20%
The broad bullshit essay on the food delivery segment is quite simple. Consumers are stuck at home, restaurants are closed, but consumers still have to eat. So they will increasingly turn to food delivery services during this exceptionally unique time.
Simple enough, right? Also difficult to argue against. Top executives at many of these food delivery companies have said that demand for their services has skyrocketed in recent weeks.
But how long will this tailwind last? And are these red-hot food supply stocks worth hunting for?
Let’s take a deeper look at the three food supply stocks that win while the rest of the market loses.
Red-Hot Food Delivery Stock: Blue Apron (APRN)
Source: Roman Tiraspolsky / Shutterstock.com
Profit for the year: 120%
First and foremost, we have struggling manufacturers of blue aprons.
But the coronavirus outbreak has breathed life into this battered company.
To date, the APRN share has increased by 120% in hopes that social distance in the US will trigger increased consumer demand for Blue Apron’s meal equipment, and that this increased demand will save the company from bankruptcy (there is not much money left in the balance sheet).
I think these hopes are too optimistic.
Yes, it will increase demand. The management has confirmed just as much. But since this is a super competitive market with lots of players (HelloFresh, Home Chef, Plated and AmazonFresh, to name a few), the demand will not be so great. Data from Google Trends shows that although Blue Apron sees an increase in search interest, it is a small spike both as a whole and relative to what competing brands see.
More importantly, this increase in demand will not last that long. Consumers like to shop in grocery stores. That’s why this space never exploded in the first place, and why the APRN share lost 98% of its value from the IPO. As soon as the virus clears up, consumers will return to their regular grocery stores and Blue Apron will return to losing customers.
Overall, the latest strength of the APRN share is based on growth assumptions that will prove to be too optimistic.
Source: PREMIO STOCK / Shutterstock.com
Profit for the year: 750%
With a jaw-dropping decline of 750% by 2020, the food delivery platform Waitr is not only the hottest food delivery stock out there, but also one of the hottest stocks on the entire market.
The dissertation is simple. Consumers can no longer go to restaurants. And not all consumers can or want to cook, so there should be an increased demand for food delivery services such as Waitr, Uber Eats, Postmates, Doordash, etc during the coronavirus outbreak.
However, the problem with this dissertation is just as simple. Most of these consumers will not turn to Waitr.
Take a look at the number of market shares for the food delivery market. This is an industry dominated by Uber Eats, Postmates, Doordash and GrubHub (NYSE: GRUB). Together, these four platforms own 98% of the US food delivery market. Waitr is meanwhile part of a group of second-hand players fighting for 2% of the market.
To make matters worse, even though Waitr is seeing an increase in customers, the company operates with a dismal 23% gross margin, with only $ 29 million in cash in the balance sheet, against over $ 130 million in debt. It is a tough financial profile to work towards.
By and large, this means that in order to avoid insolvency, Waitr has to acquire lots of new customers without driving up marketing dollars, as a gross margin of 23% is not large enough to have a large opex base. It’s a high order and I’m not sure Waitr can do it, even with the coronavirus tailwind, in a market so intensely competitive.
Source: ThomasDeco / Shutterstock.com
Profit for the year: 20%
Last but certainly not least, HelloFresh is on this list of hot delivery warehouses.
Like Blue Apron, HelloFresh is a manufacturer of meal equipment. Unlike Blue Apron, however, HelloFresh is a large and growing player in this market. While Blue Apron has seen its market share in the US meal equipment market fall from over 30% in 2016 to just under 11% in 2019, HelloFresh has seen its share grow from 12% to 26% over the same time frame.
Why this big difference in performance? Speed, simplicity and convenience. Compared to Blue Apron’s meals, HelloFresh’s meals are easier to make, take less time and require less work and ingredients.
This winning strategy enables HelloFresh to continue to dominate the meal equipment category for several years to come. The company is also already profitable with an adjusted result before interest, taxes, depreciation and amortization and will only become more profitable with an increased scale from the coronavirus pandemic.
Net, if you’re looking for a clean food delivery game right now, skip the blue apron and watch HelloFresh. The latter is simply much bigger, much better and much more profitable.
Luke Lango is a market analyst for InvestorPlace. He has professionally analyzed equities for several years, previously worked in various hedge funds and currently runs his own investment fund in San Diego. Luke is a graduate of Caltech and has been consistently recognized as one of the best stock pickers in the world by various other analysts and platforms and has developed a reputation for leveraging his technical background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based Internet company. At the time of writing, he did not hold any position in any of the above securities.