ContextLogic (NASDAQ:WISH) stock has not turned out as well as a lot of people had hoped.
Shares initially opened trading last December around $20 and quickly advanced 50%.
Since then, however, WISH stock has been in freefall, with shares falling 75% in the span of a few months. It will open this morning at around $11.40.
Finally, though, there’s hope for better days. The r/WallStreetBets crowd recently discovered WISH stock and shares doubled shortly thereafter.
The usual reasons applied. It has a great ticker symbol, high short interest, and a compelling value proposition for consumers. Add it all up, and it’s not hard to see why Reddit took a liking to WISH stock.
Question is, will ContextLogic be a flash in the pan for meme traders? Or is this move going to have real sticking power? I’m inclined toward the latter option.
While ContextLogic has some real pressing questions it will need to answer over time, there’s the foundations of a good business.
Digital Treasure Hunt and WISH Stock
ContextLogic, which operates Wish.com, has an intriguing business model. It essentially serves as a sort of online flea market or dollar store.
Its motto is “Shopping made fun” and it backs that up. Wish frequently offers discounts in the 70-90% range. It’s a bargain hunter’s paradise.
Wish has products from manufacturers with very low operating costs, such as from firms based in China. These products then sell to buyers in other markets, offering a sort of geographical arbitrage.
These products sometimes have some problems. Consumers wanting consistently high-quality merchandise probably want to look elsewhere. However, Wish.com offers products at rock bottom prices, and oftentimes the quality greatly exceeds what you’d expect to receive at that sort of price point.
It’s a bit of a hit-or-miss experience. But with such low prices, it’s hardly a big deal when the occasional order misfires. And when you find something cool on Wish at a great price, it can be a euphoric experience.
ContextLogic has members of management that were high-ups at Alphabet (NASDAQ:GOOGL) and AirBnb (NASDAQ:ABNB). Don’t let the discount online marketplace business fool you, Wish is a sophisticated operation.
Weak Stock Price Performance
Wish may have waited a quarter too long to perform its initial public offering (IPO). By the time WISH stock started trading in December 2020, traders were already selling e-commerce stocks to buy economic reopening trades.
The time for e-commerce stocks was last summer or fall, not 2021.
ContextLogic also reported a pretty ugly quarter in May. The company’s earnings fell short of expectations. It also offered revenue guidance below expectations.
Revenues grew 76% year-over-year, which is great. However, its core revenue growth of 40% was much slower and gave investors pause.
These results aren’t a disaster for the company. It’s a young firm with fast growth, even if that growth was a little below expectations. Still, management will need to start beating estimates again if it wants to get a sustained rally in its share price going.
Short squeezes are great, but long-term investors will want to see a stronger fundamental picture before committing too heavily to WISH stock.
WISH Stock Verdict
A lot of traders are wishing that they had sold ContextLogic stock during the big run-up last week. The move from $8 up to $15 in a couple of days was quite a remarkable one indeed. Profit-takers have sent the stock back down significantly since then.
However, there’s a decent chance that WISH stock still has another big surge ahead of it. The fact is that shares weren’t too pricey before the short squeeze excitement kicked off.
As such, there should still be plenty of opportunities for buyers here around $11. Shares were at $32 in February, after all. So, if you like the company, don’t let the short-term price volatility worry you too much.
As our Luke Lango argued, there’s a lot more to ContextLogic than your average meme stock, and the price hasn’t moved too far off the lows yet.
The company may need to deliver better quarterly results before the stock really explodes to the upside. However, the core business model is intriguing enough and appears to be catching on with consumers.
That plus some meme magic could make WISH stock worth holding.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.