ContextLogic (NASDAQ:WISH) has been one of the more interesting companies to go public in the last 18 months. And like many of those companies, WISH stock has been drawing the attention of retail investors. After spiking to over $32 per share within 30 days of its initial public offering (IPO), the stock has been in a steady decline, fueled more by short interest than anything else.
However, the company is miscast as just a “meme stock.” ContextLogic is the parent company of Wish.com, and it’s been in business for a decade. This means investors have more to go on than just wishful thinking. For one thing, the company has revenue that is growing. Over the last five years, ContextLogic’s revenue has grown an average of 21.26% per year.
And second, despite burning cash, the company exists in the growing e-commerce sector. As Luke Lango points out, the initial reopening of the economy may have brought bargain hunters back to brick-and-mortar stores. However, recent trends show they are coming back online.
With that said, the company is not profitable yet, And with Wish.com still in the growth phase, investors shouldn’t be expecting positive earnings anytime soon. Which means that the stock isn’t likely to get back to that $32 level soon either.
But if you’re patient and have an appetite for risk, then WISH stock has upside that shouldn’t be ignored.
Is ContextLogic Amazon-Lite?
Comparisons such as “x company is the next y company” are useful to understanding a company’s business model. True, these comparisons can be overstated. However, in the case of ContextLogic, it’s fair to say that it’s trying to be a smaller version of Amazon (NASDAQ:AMZN).
In addition to its core e-commerce app, the company has a growing advertising business. It’s also using artificial intelligence (AI) to increase user monetization and adding new merchants. But what may be the most intriguing part of the growth narrative for ContextLogic is the way it is growing its proprietary logistics business.
This means that, like Amazon, ContextLogic has multiple revenue streams. This helps make the company less reliant on growth in monthly active users (MAUs). In fact, one of the more intriguing areas of growth for the company is the growth in revenue per user, which is increasing the lifetime value of every customer.
Will the Online Dollar Store Model Work?
One argument against WISH stock that makes little sense to me is the idea that investors will turn away from it because they sell “cheap stuff.” Planned obsolescence has been a reality in our society for a long time. The saying that “they don’t make things like they used to” is true and intentional.
This is a trend that’s not likely to change. Many Americans may express concern over our country’s economic intertwinement with China. However, many of those same Americans have become accustomed to buying inexpensive merchandise. And this is a dynmaic that plays out across all income levels.
And as Larry Ramer points out, ContextLogic is focused heavily on developing countries. This should spur growth because, as Ramer writes, “for many hundreds of millions of people in developing nations, their cell phones are their only connection to the internet and to sizeable retailers.”
That plays to the strength of Wish.com and, by extension, WISH stock.
Be Careful What You Wish for With WISH Stock
Fourteen analysts cover ContextLogic. The consensus opinion is for WISH stock to climb nearly 120% from its current level. If it does that, today’s price of $10.40 will look like a steal.
However, if your expectation is for another trip to the moon, you may be disappointed. Short interest has decreased considerably in the last month. The right way to approach WISH stock is by taking a small position and continuing to build as you see more evidence of revenue growth across all its channels.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
