Meal-kit company Blue Apron (APRN) could hit $9 per share over the next 12 to 18 months, or at least that's the opinion of Ryan Meyers of Lake Street Capital Markets. According to financial news website The Fly, Meyers believes the stock is a buying opportunity, citing the company's turnaround plan and its balance sheet.

As of this writing, Blue Apron stock trades at about $4.50 per share, meaning Meyers' price target represents an incredible 100% upside. For this reason, it's worth diving into the underlying premise of a Blue Apron investment thesis to see if it can truly deliver for shareholders from here.

Blue Apron has a turnaround effort underway

Blue Apron went public in 2017 and had healthy year-over-year revenue growth of 11% that year. However, the company was clearly "buying" its growth by incentivizing low-value customers to use the platform, hoping they'd eventually become loyal fans of the brand. 

That didn't pan out. And in 2018, Blue Apron's management made the painful (but correct) choice to cut back on its marketing spend and focus on high-value customers.

The end result was that Blue Apron's revenue plummeted in subsequent years but its cash from operations improved dramatically. And the company nearly broke even on an operating basis in 2020, as shown in the chart below.

APRN Cash from Operations (TTM) Chart

APRN Cash from Operations (TTM) data by YCharts

Blue Apron focused on expanding its platform. In 2019, there were only 17 food options available and all were subscriptions. Now, there are over 57 options and customers can purchase without a subscription. The company lost customers by shifting away from marketing. However, its remaining customers now spend more per order and with greater frequency as the platform became more customizable.

This is Blue Apron's game plan for reaching annual revenue of over $700 million by 2024. (For perspective, it's generated about $459 million over the past 12 months.) It's continuing to put more options on the (ahem) table to keep customers engaged and spending more. 

Blue Apron's present problem

Here's where this turnaround plan starts getting a little tricky. Blue Apron's expenses have recently soared. Costs for food and labor have gone up but those are somewhat excusable considering macroeconomic conditions.

However, Blue Apron's $700-million plan is contingent on having more than 500,000 customers. And as of the end of the second quarter of 2022, it only had 349,000 -- down 7% year over year and down 5% quarter over quarter.

The gravity of recent customer losses is magnified when looking through the lens of Blue Apron's marketing spend. So far in 2022, the company has spent nearly $50 million on marketing, up 37% compared to the comparable period of 2021. In the conference call to discuss Q2 results, management pointed out a 22% drop in spend from the first quarter. But it also said to expect heavier spending in the first and fourth quarters compared to the second and third quarters.

As previously noted, Blue Apron almost reached breakeven on an operating basis by slashing marketing spend. However, the company has now renewed spending to stimulate growth. But it's not paying off with more customers. And it's contributing to its losses. Year to date, the company has a net loss of almost $62 million. 

Not a buying opportunity

Blue Apron doesn't appear ready to course correct, meaning it will tap the balance sheet that Meyers referenced in his buy recommendation. The company has $54 million in cash and equivalents and is getting about $70 million from investment firm RJB Partners. These are admittedly significant resources for a small-cap stock like Blue Apron.

However, Blue Apron's investment thesis hinges on making these marketing dollars count. So far it's not working. And if the strategy doesn't start working this year, the company could be tempted to tap its stock as a source of liquidity just as it's aggressively done in recent years.

As the chart shows, Blue Apron has issued shares at a rapid pace, meaning shareholders are funding a substantial portion of the turnaround plan.

APRN Average Diluted Shares Outstanding (Quarterly) Chart

APRN Average Diluted Shares Outstanding (Quarterly) data by YCharts

I believe Meyers' price target of $9 per share will be hard to justify even if Blue Apron hits its targets. The company expects a profit margin of 2% for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024, implying an adjusted EBITDA of $14 million. I believe many investors would agree that a valuation of 20 times its adjusted EBITDA would be fair, giving the stock a potential market capitalization of $280 million.

That valuation is about 56% higher than where Blue Apron traded as of this writing, not 100%. And based on what we've seen, I believe it's fair to question whether the company will hit its targets on time. Therefore, I don't think this is a stock worth betting on now.