Is ContextLogic a Buy Under $4?

Mobile eCommerce company ContextLogic Inc. (WISH) in San Francisco operates a discovery-based shopping platform, Wish, that connects users to merchants. On November 9, the company introduced the Wish Standards program to incentivize the delivery of quality products and other positive behaviors from its merchants. However, the stock has declined 27.3% in price over the past month and 49.1% over the past three months to close yesterday’s trading session at $3.54.

News that WISH’s CEO, Piotr Szulczewski, will be stepping down from his position no later than February 1, 2022, has added to investors’ pessimism. Devang Shah, an insider at the company, sold 94,940 shares on November 17. And lately, hedge funds’ interest in the stock has declined.

Furthermore, WISH said on Nov. 10 that its fourth-quarter revenue is expected to be below the third-quarter revenue despite the holidays. So, its near-term prospects look bleak.

Click here to check out our E-commerce Industry Report 

Here are the factors that could shape WISH’s performance in the upcoming months:

Questionable Business Practices

Several law firms have launched investigations against WISH on possible violations of the Securities Exchange Act of 1934. It is alleged that it made materially false and misleading statements, such as allegedly omitting that its fiscal 2020 fourth quarter monthly active users had declined materially and were not growing.

Also, Alphabet Inc.’s (GOOGL) Google is reportedly delisting WISH from its search results in France because of severe and widespread product safety concerns. Last month, French Economy Minister Bruno Le Maire warned the government would take legal action against search engines and app stores that continue to list it.

Unimpressive Financials

WISH’s revenue decreased 39% year-over-year to $368 million for the third quarter, ended September 30, 2021. The company’s total monthly active users declined 40% year-over-year to 60 million, impacted by lower digital ad spending. Its net loss came in at $64 million, compared to $99 million in the prior-year quarter, while its loss per share was $0.10, compared to $0.92 in the year-ago period. In addition, its FCF was negative $344 million compared to $473 in the prior-year period.

Poor Profitability

In terms of trailing-12-month EBITDA margin, WISH’s negative 30.81% is lower than the 12.80% industry average. And the stock’s trailing-12-month net income margin is negative compared to the 6.56% industry average. Furthermore, its negative trailing-12-month ROTC and ROTA compare with the 7.56% and 5.94% respective industry averages.

POWR Ratings Reflect Bleak Prospects

WISH has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. WISH has a D grade for Stability, consistent with its 1.45 beta.

The stock has a D grade for Sentiment, which is in sync with analysts’ expectation that its revenue will decline 60.5% in the current quarter (ending December 31, 2021) and 16.9% in its fiscal 2021. Also, its EPS is expected to remain negative this year and next year.

WISH is ranked #58 t of 77 stocks in the Internet industry. In addition to the POWR Ratings I have just highlighted, we have also rated the stock for Growth, Value, Momentum, and Quality. Click here to get all the WISH ratings.

Bottom Line

Even amid a red-hot IPO market, WISH’s shares have declined  roughly 16% below their initial-public-offering price in December last year. It is currently trading below its 50-day and 200-day moving averages of $4.53 and $9.12, respectively, indicating a downtrend. Moreover, it could keep retreating as the company burns through cash and reports losses. So, we think it could be wise to avoid the stock now.

How Does ContextLogic (WISH) Stack Up Against its Peers?

While WISH has an overall POWR Rating of D, one could check out these B-rated (Buy) stocks within the Internet industry: Travelzoo (TZOO), Yelp Inc. (YELP), and trivago N.V. (TRVG).

Click here to check out our E-commerce Industry Report 

WISH shares fell $0.06 (-1.69%) in premarket trading Wednesday. Year-to-date, WISH has declined -80.59%, versus a 25.50% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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