Following its recent disappointing earnings report, there seems to be two camps of opinion forming when it comes to ContextLogic (NASDAQ:WISH) stock. In one corner, you have some who saw the recent results, and now are skeptical whether a comeback is possible for the e-commerce play in the near-term.
In the other corner, you have those bullish on its turnaround. They instead see its most recent move below $7 per share as a “buy the dip” situation. So, who’s right, and who’s wrong?
At first, as seen in my last article on ContextLogic, I found myself in the first camp. But giving the more bullish take on the stock a second look? The possible upside from here may be worth the risk (more below). At worst, if shares pull back again, it’ll likely result in a double-digit percentage decline. If the bull case plays out? The stock has room to make a triple-digit percentage gain from today’s prices.
Keep in mind, though, it may not be a smooth ride back to past prices. A rebound may still take time. Shares could still be volatile, even if the bull case ultimately prevails. That being said, if you have the patience and risk appetite, now may be the time to pounce. Wait too long for it to fall further, and you may miss out.
Why The Skeptical View on WISH Stock Could Prove Correct
Why was ContextLogic’s latest earnings report a disappointment? Not only did it fall short of analyst estimates. Instead of growing its sales in the quarter ending June 30, it saw a 6.4% year-over-year decline in revenue. It makes sense that the popularity of its e-commerce platform has taken a dip in the past year. The industry’s Covid-19 tailwinds have come and gone.
But given that other e-commerce plays have only seen their sales plateau, not decline? The company seems to have more troubles on its plate than similar names. Yes, management has a game plan to return it to growth mode.
The caveat? This turnaround is going to take quite some time. As it discussed in the shareholder letter that accompanied earnings, year-over-year sales growth won’t resume anytime before the second half of 2022. In the meantime, what could happen with WISH stock? It may still have some appeal as a short-squeeze play, with around 15.4% of its float sold short.
But a squeeze may not happen, if this short interest fails to creep back up. Or, if the amount of conversation about it on Reddit’s r/WallStreetBets subreddit falls off, with the meme stock army not interested in sending it “to the moon” once more. Without support from these retail traders, chances are the stock, as its turnaround is a work-in-progress, could continue to fall to new lows.
Signs Pointing to the Bulls Being on the Mark
After detailing the skeptic’s case for WISH stock, let’s take a look at the bull case: that it’s a “buy the dip” situation at $7 per share. Again, it may be a favorable risk/return proposition. The upside from a successful turnaround next year may outweigh the risk of future declines. Not only that, the concern I had above (that meme stock traders cashing out sends it lower) may be overblown.
As InvestorPlace’s Ian Bezek discussed in his recent article on ContextLogic, the Reddit trader army may have already bailed out of it. That would explain its rapid sell-off after releasing its numbers after the close Aug 12. In short, the risk of another big decline may be minimal.
Instead, as Bezek sees it, given it has factors like a strong user base that bolster its chances of successfully turning itself around, investors looking for a bargain may start bidding it up now, instead of when it finally delivers strong results again.
With this in mind, perhaps buying now makes sense. Wait too long for shares to hit a new low, and you may miss the boat when it comes to a possibly epic WISH stock comeback. If it’s a situation where it has the potential to get back to $20, $25, or even its all-time high of $32.85 per share, it may be foolish to split hairs about buying it at $7, versus waiting for it to fall to $5 per share or less before buying.
Bottom Line on ContextLogic Stock: Big Upside May Make it Worth The Risk
Even with my concerns, I believe there’s merit to the bull case being laid out about ContextLogic shares. Given the level of upside if its turnaround plays out, worrying too much about your entry price could lead you to miss out on this opportunity.
It’s still risky, but buying WISH stock on the chance the bull case proves correct may be worthwhile.
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.