I am bearish on ContextLogic (TO WISH), but for high risk tolerant investors, WISH is extremely attractive.
The stock went public 11 months ago at $ 24 and climbed to $ 32.85. The stock price collapsed in 2021. It recently closed at $ 4.39. ContextLogic’s average price target of $ 5.10 implies a 20% change from the current price. Three Wall Street analysts recommend a hold and two a sell of shares.
It will take a siren to trigger a wave of buying that will raise the share price. Investors face a daunting chore, watching the new management team structurally respond to the plethora of customer complaints. (See the top analyst stocks on TipRanks)
Full of challenges
Investor sentiment on WISH is very negative. Insiders and hedge funds are getting rid of stocks. TipRanks has lowered its Smart Score to 1, which stands for Underperform.
Critical sentiment on the decline
Sentiment among TipRanks investors has fallen 3.5% in the past seven days and 14.5% in the past 30 days. The feeling should not be overlooked. Investor sentiment follows customer sentiment, which is critical to business success.
The sentiment of budget-conscious customers is also collapsing. Revenue was down 39% year over year. The volume of shipments, reflecting sales, was lower. But the most persistent problem is the astral plane with the disappearance of the clients.
The company reported in the second quarter of 21 that the number of active users declined year over year to 90 million and 52 million active buyers. Its Q3 ’21 report announced a further drop to 46 million active buyers. Management warns that there will be a further slippage in revenues, profits and the number of active buyers.
Complaints from WISH customers abound. The main ones are poor customer service, delivery delays and cancellations, product quality and credit card issues. As a personal example, I had no idea that some items in my order were never shipped until I found an encrypted message.
The negativity about WISH on the internet is swirling, some fear, into a backlash. WISH collects only 3.1% unsolicited positive reviews on SiteJabber. This is as the popularity of e-commerce increases, with 62.5% of consumers reporting that they do most of their shopping online. While revenues of $ 469.3 billion are forecast for e-commerce in 2021 and $ 563 billion by 2025, WISH commerce revenues are down 52% year-over-year.
S insiderstake a bad example
40.8% of WISH shares are held by insiders. They have sold stocks worth $ 13.8 million in the past 3 months. The list of sellers includes officers, directors, legal advisers and others, and their actions speak loudly to other investors.
Tickle the fancy of risk takers
Despite all the negatives, it’s fair to say that WISH is oversold and the company is undervalued … by a lot. He is not yet on his way to fate. WISH offers viable products and services, infrastructure, a respected website and millions of buyers. WISH is, for all its problems, the fourth largest American company selling products online.
How many companies can claim to have reached $ 368 million in sales in three months (Q3)? Q3 GAAP EPS of $ -0.10 beats estimates. WISH sells more than $ 2.5 billion in goods and services annually, and its market capitalization exceeds $ 2.8 billion. In addition, WISH is among the 35 largest ecommerce companies by market capitalization. How many companies have $ 1.2 billion in cash and cash equivalents like WISH, and an 18-month cash trail?
Plus, WISH is debt free. I anticipate that profits will increase to drive the business to or near profitability within 20 to 36 months. Adjusted EBITDA reported a loss of $ 30 million, less than half of the loss of $ 64 million a year ago. Also, I expect free cash flow to break even this year. Revenues will grow in double digits as the company makes its operations more efficient and its marketing more efficient.
Final thoughts
To some extent, WISH suffered from the myopic effects of being labeled as a memes stock after going public. The stock jumped 22% in one day and WISH became the most high-profile stock on Wall Street talks, garnering 3.5 thousand mentions.
Analysts and investors alike came to believe that stocks were going to erupt like other memes maligned by seasoned market makers. Then the stock had its paws ejected from underneath as the meme’s euphoria wore off. 30% of the stock was sold short in October, so the stock could show up if there is good news or if the meme reappears.
There are many more valuable e-commerce stocks than WISH. But the potential rewards for investors buying at the current price of the stock in the basement seem a tantalizing risk.
Disclosure: At the time of publication, Harold Goldmeier holds a long position in WISH, the subject of this article
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