Shares of Blue Apron Holdings (APRN) charged sharply higher Tuesday, gaining as much as 39%. As of the market close, the stock was still up 15.9%.
The catalyst that sent the meal kit company higher was a rally that appears to have sent short sellers running for cover.
A check of all the usual sources, including regulatory filings, press releases, and more, found no company-specific information that would explain the unusual move higher today by Blue Apron. However, given the battleground nature of this stock and the company's high short interest, this has all the markings of a short squeeze.
When investors become bearish on a stock, some employ a strategy known as shorting, whereby they borrow shares from a broker and sell them at the current price, believing they will ultimately fall in the future. If the stock does in fact decline, those same investors buy shares at the lower price to replace or cover the borrowed shares, making a profit in the process.
In this case, Wall Street has been betting heavily against Blue Apron. In fact, a full 23% of the float was sold short as of July 29, according to Yahoo! Finance. That amounts to nearly 12% of the company's outstanding share count, making it an ideal candidate for a short squeeze.
There was additional evidence that the bulls were running. More than 31.8 million shares traded hands today, up more than 13-fold compared to the average daily volume over the past three months.
The skyrocketing share price and the resulting short-covering become a self-fulfilling prophesy, driving the stock even higher. Those factors helped push Blue Apron into the stratosphere today, but investors should look beyond the hype at the company's long-term prospects.
When Blue Apron released its second-quarter report earlier this month, the results seemed lackluster at best. Net revenue of $124 million was flat year over year, while its net loss of $23 million worsened by more than 24%. While the results improved sequentially, the company still has a long road ahead to profitability.
Given the relentless competition in the meal kit space and Blue Apron's ongoing struggles, I would take today's rally with a grain of salt.