ContextLogic (WISH) operates an international discount e-commerce marketplace which connects users to merchants. I am bullish on the stock.
Everybody likes a bargain, right? If you’ve ever visited the ContextLogic-owned Wish marketplace, you’ll find a wide variety of household products, knickknacks, and even some electronics and other gadgets.
Admittedly, these items sometimes look cheap, but that’s why they cost so little. After the onset of the COVID-19 pandemic, an e-commerce site focusing on bargain-priced products sounded like an ideal business model.
Yet, ContextLogic and Wish haven’t made the investors’ wishes come true. Besides, supply chain issues could cause the company’s problems to persist for a while. (See Insiders’ Hot Stocks on TipRanks)
A Quick Look at WISH Stock
WISH stock actually started off 2021 with a bang. In January, the share price rallied from less than $20 to more than $30.
That was the end of that rally, though, as the stock commenced a multi-month bear run. Painfully, WISH stock eroded below $10 in May, and then just kept on sliding.
Fast-forward to early November, and the stock was barely above $5.
That’s a significant level because some people will informally call any stock trading below $5 a penny stock.
So, the buyers really need to defend that level. Breaking below it could cause irreparable technical damage.
Fiscally Flawed
As COVID-19 vaccines became widely available, the appeal of an online marketplace for cheap goods likely declined in 2021.
This factor may have contributed to ContextLogic’s bottom-line financial issues.
On a trailing 12-month basis, ContextLogic has an EPS of -$2.36.
That’s a hard pill to swallow, especially when the share price is barely above $5.
Fairly soon, the company will have an earnings data release. The stakeholders had better pray for a home run.
In the previous fiscal report, from the second quarter of 2021, ContextLogic posted a net loss of $111 million.
That’s significantly worse than the year-earlier quarter’s net earnings loss of $11 million, which itself wasn’t anything to celebrate.
A Dire Downgrade
To make matters worse, Oppenheimer analyst Jason Helfstein gave ContextLogic a major smackdown when he downgraded WISH stock to underperform, and assigned it a $4 price target.
Given the aforementioned earnings stats, it’s hard to fault Helfstein for his pessimistic stance.
Yet, the Oppenheimer analyst cites a further point, which is worth noting.
The global supply chain bottlenecks which are wreaking havoc on many businesses could be particularly troublesome for ContextLogic.
That’s because much of ContextLogic’s operations are based in China, where supply chain issues are particularly problematic.
Thus, ContextLogic “remains the most vulnerable” e-tailer, according to Helfstein.
“China accounted for substantially all [of its] marketplace/logistics in FY20, exposing WISH to [the full brunt of the] 393% increase in shipping costs,” Helfstein continued.
This is bad news for the sellers and consumers on the platform, but may be even worse for ContextLogic’s shareholders.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, WISH is a Hold, based on two Buy, five Hold, and three Sell ratings. The average WISH price target is $9.06, implying 69.5% upside potential.
The Takeaway
WISH stock is down, yes, but that doesn’t make it a bargain.
Until the company’s earnings profile turns positive — and as long as the supply-chain problems persist — it’s going to be difficult to recommend WISH stock at all.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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