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Motley Fool Issues Rare “All In” Buy Alert

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Shares of Blue Apron (APRN -7.92% ) lost 11.8% of their value this week compared to where they closed last Friday, according to data provided by S&P Global Market Intelligence, as the momentum that had caused the stock of the meal-kit delivery outfit to more than double over the past month ran out of steam.

Blue Apron was the beneficiary of continued bullish investor sentiment on Reddit because of its high short-interest ratio, which had stock traders rallying around its shares. But much of the enthusiasm finally stalled out midweek, and its shares began trading lower again.

Shares of Blue Apron rallied to a high of $7.48 this week, the highest they've been since February, on the momentum they had been built up for a short squeeze. 

As my Motley Fool colleague Jeremy Bowman reported, Reddit traders noticed that about 23% of Blue Apron's stock was sold short in August, and because many of the meal kit company's shares are owned by insiders, there was a limited float in the market. If traders banded together and bought shares to move the stock higher, they could trigger a short squeeze, which is what seemed to have happened.

Blue Apron's shares closed out July at just over $3 a share, but they quickly began rising until they had more than doubled in value over the course of August. But since its peak on Tuesday, the stock has given up 32% of its value.

It's also notable that the short interest in Blue Apron has gone down considerably since then, with shares sold short declining to 3.7 million, or almost 10%, between July 31 and Aug. 15, the date of the most recent short-interest report (there is a nearly 10-day lag from when short interest is reported to when the information is released). It seems that short-sellers have covered their positions, dissipating the likelihood of any further squeezing.

Despite the rapid rise in Blue Apron's stock price, the meal kit company's business is not any better off than it was. Meal kits have become nearly commoditized as numerous competitors entered the market, notably supermarkets themselves, which helped drive down their price. 

The delivery aspect of Blue Apron's business is a costly component, particularly these days with still-elevated gas prices, so there is no distinguishing value to set it apart for the market. Given the reduction in shares sold short, there's not likely to be much more momentum, either, to drive any further squeeze of the stock.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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