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Take Your Time With ContextLogic as a Turnaround Play

In many ways, you can say the party’s over when it comes to ContextLogic (NASDAQ:WISH) stock.

WISH stock
Source: sdx15 / Shutterstock.com

With its short interest moving lower, it’s no longer the hot short-squeeze play it once was. Its appeal among traders active on Reddit’s r/WallStreetBets subreddit is trending lower as well. Chatter about it on the popular platform is moving back toward where it was before the second meme stock wave in June.

It’s bad enough it’s no longer as hot of a stock among quick buck speculators. Given that it may take more than a year for its underlying e-commerce business to get out of its slump? Patience is key if you want to make a wager on the turnaround of WISH stock.

On top of this, there’s a risk that the stock market may face challenges in the coming months. ContextLogic may seem like it’s taken its lumps. But given that story stocks and busted story stocks alike won’t fare well in a correction, a move to even lower prices may be ahead.

I remain upbeat about WISH stock and its potential to ultimately make a comeback. But between now, and when said comeback happens (late 2022 at the earliest), the stock may take another big tumble. With this, taking your time before buying may be the best move.

WISH Stock May Be in For a Fall

Down by nearly 50% since July and 66% over the past six months, it may seem like this former high-flyer has already bottomed out. Yet WISH stock may be set to move from where it sits today (around $6.50 per share), down to low single-digit price levels.

There’s a significant risk the stock market will take a dive between now and the end of 2021. It may not be a meltdown on par with the March 2020 coronavirus crash or the 2008 financial crisis. Instead, we could see just a textbook 10% correction. That said, a shift in investor sentiment from risk on to risk off is bad news for investors in speculative plays like WISH stock.

ContextLogic may not be as cheap as it seems at first glance. Recently, our Dana Blankenhorn made the case why its valuation is still out-of-whack. In his view, shares should trade at a valuation far below its current price-sales, or P/S, multiple of 1.7x. In time, Mr. Market could start to agree, especially as factors like Fed tightening and higher interest rates push down what are still historically high valuations for stocks.

With this, another high double-digit move lower for this stock may not be out of the question.

Sure, some bullish on its comeback may believe risk/return is tilted in their favor. That is, the chances a turnaround sends it back to $15, $20 or even $30 per share far outweighs the risk it falls to, say, $2 to $3 per share. However, given the time it’s going to take for said turnaround to happen, you could find yourself sitting in an underwater position for quite some time.

A Turnaround Is Too Far Away

In my last article on WISH stock, I switched from skeptical to optimistic when it comes to this struggling online retailer’s comeback. Mostly, due to the stock’s ample room to run if it manages to get back into high-growth mode and back on the path to profitability. With this, splitting hairs over entry price seemed to be something that would leave one at risk of missing out on this opportunity.

But as the market correction warning bells get louder, I’m starting to lean back to the default wait-and-see view I take on most stocks. As I stated in my last article, the company itself has said revenue won’t will not resume until at least the second half of 2022. That means nearly a year to go before the management and user acquisition strategy changes ContextLogic is making today start getting reflected in its financials.

If a correction knocks WISH stock down, it may take time for it to rebound. Results in the next two or three quarters aren’t likely to renew excitement. With the high chances it’ll remain at depressed price long enough to buy it ahead of its turnaround, there’s little reason to dive in today.

Wait and See With ContextLogic

There’s some logic (pun intended) in buying ContextLogic as a turnaround play. Shares could see tremendous appreciation if the company manages to make a comeback. Yet with the likelihood it sees another big decline in price between now and then, don’t feel the need to rush into it at today’s prices.

With plenty of time to buy it ahead of a turnaround, wait and see with WISH stock.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2021/09/take-your-time-wish-stock-turnaround-play/.

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