At just under $5 per share, ContextLogic (NASDAQ:WISH) is technically in penny-stock territory. Worse yet, WISH stock has many of the negative traits usually exhibited by penny stocks. For example, ContextLogic’s financial results are poor, and its prospects are murky.
Consequently, very few investors are holding their breath waiting for the company turn itself around. Personally, I’ve changed my view on whether it can revitalize itself multiple times.
On the one hand, we’ll have to wait and see whether the company’s turnaround plan will work . On the other hand, the shares have dropped sharply and expectations for the company are low among both retail and professional investors. Consequently, even a slight improvement in its results could launch WISH stock much higher.
The shares may not rally to $20 or even $24, where they traded earlier this year. But a move back to $10 or $15 per share could be in the cards. That said, ContextLogic’s turnaround is not expected to start bearing fruit until nearly a year from now. As a result, buying some shares now and acquiring more if it dives further may be the best move.
Why WISH Stock Now Trades at Penny-Stock Levels
Before diving into the rationale for buying ContextLogic , let’s explore exactly why this stock, once an e-commerce darling, tumbled around 80%. Obviously, the company’s bad operating performance has been the main driver of the large decline of its stock price.
At first, ContextLogic provided underwhelming guidance, In the months that followed, however, its prospects got worse. In August, the company reported that its second-quarter sales had declined compared to the same quarter in 2020. That’s not exactly a good sign for a so-called “growth stock.”
Following the company’s terrible quarterly report, its status as a short-squeeze play among meme stock investors ended. Over the summer, retail traders had piled into it, in the hopes of squeezing the shorts as they had done with AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME). Unfortunately, despite a big push from speculators on social media, it failed to join the ranks of those meme-stock legends.
Instead, with the “smart money” panning it, and retail traders giving up on it, too, there were few buyers of WISH stock left. But while that’s been bad news for those who “bought the dip,” only to find out that all they did was catch a falling knife, investors considering buying the shares for the first time now may have a better chances of success.
How ContextLogic Plans to Make a Comeback
There’s been a lot of commentary lately about the turnaround of WISH stock and whether or not it will pan out. So you may be wondering what the company is planning to do to adapt to the “post-pandemic” online retail sales environment.
Mostly, ContextLogic in changing how it acquires and holds onto customers. Before, it could rely on its high advertising spending to attract eyeballs to its platform. With the world recovering from the pandemic, that no longer works, as InvestorPlace contributor Ian Bezek wrote in his Sept. 23, article. That’s because the “reopening” has increased the demand for digital ads, making this strategy too expensive.
So the company has altered its marketing strategy. Instead of spending a great deal and generating one-time sales, it’s focusing more on user retention and looking to obtain more revenue from its existing user base. It’s also looking to improve the quality of the products offered on its platform and enhance the overall experience of its users.
That’s the encouraging part of the company’s strategy. But, on the other hand, its efforts probably won’t bear fruit until the second half of 2022. With ContextLogic likely to report more bad numbers in the next few quarters, the sentiment towards WISH stock could get more negative before it starts recovering.
Even a Turnaround With Mixed Success Could Send the Shares Higher
It may seem like ContextLogic is talking up a big game and making the right moves, only to see these moves fail to overcome challenges outside of its control. The jury is still out on whether it can fully get back on track by cutting its costs and improving the experience of its users
But it may not need to pull off a full turnaround to make its shares a buy. Moderate improvements by the company may be enough to send its stock back to $10-$15 per share.
WISH stock probably can’t start to recover for close to a year. Buying a relatively small amount of its shares now and a bit more on further weakness could create a high-risk/high-potential return opportunity.
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.
