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Penny Stock Basics

Blue Apron: Green For a Day, But With Red Flags

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Written by Timothy Sykes
Updated 8/10/2021 7 min read

Recently, the meal service Blue Apron (APRN) had a massive spike, with shares up 7.34% in the course of a single day. But does that mean you should rush in and buy?

The short answer is no, because this stock is actually a huge loser.

However, there are lessons that traders can learn from short-lived spikes like this. Stock prices experience huge spikes in price all the time, but to be able to take advantage of this phenomenon, it’s vital to understand the catalysts behind the price changes.

In this post, I’ll explore what played into this sudden spike with Blue Apron and how you can learn from it so that you’re better educated the next time you see a similar situation.

What Is Blue Apron?

Blue Apron is a meal delivery service. You know the deal: Customers place orders online, and then receive ingredients and recipes by mail so that they can prepare the food at home.

This is undoubtedly a trendy sector, but that doesn’t necessarily mean stocks like this are worth your trading time and money.

Why Did Blue Apron Stock Shares Go Up?

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blue apron stock spike after CEO leaves
Two long green candles showing the stock spike

So … what made shares go up so suddenly? As it turns out, the catalyst was a change in personnel.

Last Tuesday, Blue Apron announced some big changes in its C-suite. They announced that the company CEO Brad Dickerson and co-founder and CTO Ilia Papas had left the company to pursue other opportunities.

Analyzing the Catalyst

This is important: changes in personnel don’t automatically cause a stock to go up. Actually, sometimes it can have the opposite effect — consider the case of Starbucks, where shares plummeted after former CEO Howard Schultz announced he would step down.

However, in the case of Blue Apron, it was a necessary move. While the sector is getting buzz, Blue Apron’s stock hasn’t been soaring, mainly because the company’s financials totally suck.

A Dismal Financial Situation

The chart tells the truth about Blue Apron. Share prices have shown a steady downtrend since its IPO in 2017, with shares falling from the initial price of around $10 to just $1. You don’t need to be a genius to know that this is a big warning sign that the company is in trouble.

Additionally, when you look at the company’s financials, they’re not great. The company is not profitable, and doesn’t appear to have ever been profitable. They’re bleeding money, and usually companies don’t reverse that sort of trend.

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With companies like Amazon that have more capital and more business acumen taking a bigger stake in the at-home meal delivery sector, it’s not likely that a company like Blue Apron will succeed in the long term.

However, people want to believe the hype.

So when Blue Apron announced that the new CEO will be Linda Findley Kozlowski, who most recently held the position of Chief Operating Officer at the successful handmade marketplace company Etsy, it gave investors some short-lived hope.

The personnel shake-up, and the addition of an up-and-coming new leader, clearly inspired optimism. While the stock closed at about $0.97 on Tuesday, following the announcement, shares peaked at about $1.15 on Wednesday.

Will it Last?

Plenty of traders rushed in like fools, buying up shares of Blue Apron because they bought into the hysteria. But will it last?

In a word, no. Blue Apron’s stock has already consolidated, closing at about $1.04 on Wednesday and continuing to creep down on Thursday. Given the company’s dire financial situation and the distinct lack of upticks, the stock spike was probably a one-time thing and unlikely to repeat itself.

So if you want to make money from Blue Apron, sorry, but that spike is over and done with.

What Can You Learn From Blue Apron’s Spike?

Even if you weren’t able to take advantage of the spike, there are still some valuable lessons that traders can take away from this experience.

Don’t Believe the Hype

Blue Apron is a classic example of why you shouldn’t take a position with a stock solely based on hype. Plenty of fools rushed in to buy shares after they read that the stock was going up, but a quick Google and a look at the stock’s chart would have told them that this was a bad idea.

After hours spiking does NOT make an earnings winner--it needs to prove itself during normal market hours. And Blue Apron has not been able to do that.

Never trade based on hype alone. Be sure to be calculated in your trading decisions and to prepare by doing plenty of research on the stock in question, including looking at its chart and its fundamentals.

The Importance of Catalysts

However, in spite of the fact that you shouldn’t trade based on hype, Blue Apron does teach a valuable lesson about the importance of keeping track of current events.

Catalysts that can shake stock prices happen all the time, and to be ahead of the curve, you’ve got to stay on top of the news.

By being on top of world events, keeping a close eye on what’s trending on social media, and scouring the business pages on a daily basis, you can be alerted to opportunities before the masses.

Of course, once again, it’s always very important to back up your findings with research so that you can make a better determination about whether the news has merit before executing any trades.

Look for Sympathy Plays

In the stock market, big spikes like this can sometimes inspire sympathy plays. This is when stocks in the same sector experience spikes or growth because one catalyst has a trickle-down effect.

No, this doesn’t mean that you should automatically load up on shares of any and every meal-delivery service, especially if their financials suck as much as Blue Apron’s. You always have to perform careful fundamental and technical research and have a strong trading plan in place.

However, it may be worth creating a watchlist of like-minded companies as you consider future trades, because they could react favorably to big news catalysts too.

What has been your experience with trading based on news catalysts? Leave a comment and tell me your thoughts!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

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Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”