For those investors looking for a meme stock to buy, ContextLogic (NASDAQ:WISH) stock is a good name to consider.
Among ContextLogic’s many strong, positive catalysts are powerful revenue growth, a viable path to profitability, promising initiatives, top-notch institutional investors, and a reasonable valuation. Given all of these qualities, I’m quite upbeat on the longer-term outlook of WISH stock.
Many of ContextLogic’s merchants are based in China, but its customers are spread around the world. ContextLogic focuses on selling “affordable” products.
Also worth mentioning is that the company reminds me, in some ways, of two of the most successful stocks of recent years: JD.com (NASDAQ:JD) and Nio (NYSE:NIO). And of course, even though the power of the Reddit crowd to lift stocks by huge amounts appears to be meaningfully weakening, in the shorter term, ContextLogic’s shares can get a meme stock bump.
Growth, Profits and Promising Initiatives
In the fourth quarter of last year and in Q1 of 2021, ContextLogic’s revenue climbed 75% year over year. Also encouragingly, last quarter, the sales of its Logistics unit soared 338% and its core marketplace revenue per active buyer jumped 76% from the previous year. Meanwhile, the percentage of orders more than $20 rose by 54% from the previous year.
Given ContextLogic’s specialization in affordable, mobile e-commerce and its focus on many developing countries, there’s a great chance that its growth will continue to be very rapid going forward. That’s because, for many hundreds of millions of people in developing nations, their cell phones are their only connection to the internet and to sizeable retailers.
On the profitability front, ContextLogic’s Q1 gross profit came in at $437 million, up from $156 million during the same period a year earlier. The increase suggests that, as the company’s revenue accelerates and its other costs decelerate, it will become profitable.
As far as promising initiatives, the company is working to make its “shopping experience … more personalized.” It’s also taking steps to increase the number of merchants on its website; in all markets other than China, the number of merchants on its websites more than quadrupled last quarter from the previous year. In the U.S., its merchant count nearly tripled.
Meanwhile, ContextLogic is experiencing with new products, including on-trend women’s apparel, adding more translation services and live-chat customer service, expending to new geographic market and enhancing its rapidly growing Logistics unit.
Similarities to JD.com and Nio
Temasek ,the Singaporean national wealth fund, invested nearly $424 million in WISH stock as of March 30, while Morgan Stanley (NYSE:MS) had pumped over $106 million into the shares and two of Morgan Stanley’s mutual funds had invested another $67 million in the shares.
These large, highly reputable shareholders, to a certain extent, validate ContextLogic’s business, its financial strength and its positive outlook. And, just as Tencent (OTCMKTS:TCEHY) was able to provide Nio with large amounts of funding when the automaker needed help, ContextLogic’s large investors can do the same for the latter company, if necessary.
Also like Nio, ContextLogic is growing extremely rapidly. And similarly to JD.com, ContextLogic has successfully entered the logistics business and specializes in selling products to working-class people.
Valuation and the Bottom Line on WISH Stock
The shares are trading at a relatively reasonable (for a rapidly growing tech company) forward price-sales ratio of 2.6.
Also worth noting is that the company’s shares have fallen well over 50% since Feb. 1, despite their relatively recent elevation to meme status.
In light of ContextLogic’s strong growth and favorable outlook, I believe that WISH stock currently is a very good name for investors to buy on weakness.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.