Is WISH Stock Cheap? Here's What Investors Should Know
ContextLogic (WISH) was one of the most popular stocks among retail investors during the meme-stock craze of 2021. However, shares of the e-commerce company, which owns the Wish platform, have plummeted by 97% from its peak in late January 2021, shortly after it became a publicly traded company.
Despite its weak business fundamentals and difficulties in making profits, investors may want to consider buying shares of the company while it has a penny stock valuation.
Figure 1: Is WISH Stock Cheap? Here's What Investors Should Know
Wish
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First, a Little Bit of Context and Logic
Currently, ContextLogic shares are worth little more than 70 cents. That's the lowest price in the history of the stock.
Like other e-commerce players, ContextLogic was a big beneficiary of the stay-at-home trends related to the COVID crisis. However, disappointing earnings results soon showed that the company would be unable to sustain its growth in a post-pandemic scenario.
WISH was worth $30 per share in January 2021. But since then, WISH shares have lost 97% due to lost customers, poor margins, and two changes of the company's CEO in the last two years.
Figure 2: WISH stock performance since IPO.
Yahoo Finance
Why Is WISH So Cheap?
Wish became prominent in the e-commerce market because of its "cheap" products. The virtual retailer, which imports the vast majority of its goods from China, was able to offer prices far lower than Amazon (AMZN) and other competitors.
However, customers started to complain about the quality of Wish's products and the time it takes to receive goods. Competing Chinese platforms like Alibaba's (BABA) AliExpress, and Pinduoduo's (PDD) Temu also work with similar-quality products. However, their superior logistics infrastructure and quality control have stolen a large portion of Wish's customers.
Now, when looking at ContextLogic's trajectory since its initial public offering (IPO) in December 2020, one can conclude that it's cheap. After all, it currently costs less than $1 per share.
However, there are good reasons for this cheap share price.
Regrettably, nearly all of the company's revenue generation and profitability metrics have gotten worse. And it hasn't helped that the macroeconomic scenario is especially unfavorable for companies with no earnings history, either.
Wish's sales have been declining quarter by quarter for the last two years. Last quarter (Q2), sales dropped 80% year over year. And for the last 12 trailing months, the company posted net losses of $272 million.
But ContextLogic is not all bad. Even with all the difficulties and burning through $361 million in operating expenses last year, the company has almost $1 billion in cash and virtually zero debt.
The company also has some valuation metrics that aren't bad, either. The company's price-to-book ratio is 0.8 ,versus a retail industry average of 4.7. And ContextLogic's enterprise-value-to-EBITDA ratio is 1.5, versus an industry average of 24.3.
The metrics indicate that WISH may be quite undervalued.
Should You Buy the Dip in WISH?
There is certainly a lot of risk in ContextLogic's stock, from the macro backdrop to the company's governance problems. The recent and early departure of former CEO Vijay Talwar in late September after only seven months on the job certainly raises a yellow flag.
However, looking at the company's balance sheet and considering its cash positions and debt, the company is for the time being not a bankruptcy risk — which is excellent news for a penny stock.
But the company has work to do. Its operational risk is the most worrying, because the Wish platform continues to lose users, record revenue losses, and struggle to address serious problems in consumer experience and delivery times.
The level of investor confidence in the quality of Wish's products and its ability to provide a positive customer experience is currently super low.
On the other hand, WISH has already been severely punished. A further significant downside risk is unlikely.
Considering that the company has a market cap of nearly half the amount of cash it owns, Wish is cheap. The big question is whether — with a recession likely ahead — the stock could get even cheaper.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)
