Let’s be honest. There’s not much love going around for ContextLogic (NASDAQ:WISH) stock right now.
If you listen to the trading community, you’ll be convinced that WISH stock is absolutely toxic.
There’s no denying that ContextLogic has been a real dud for investors since the company’s initial public offering (IPO). There was an initial share-price pop, but the hype phase didn’t last very long.
Adding insult to injury, a Wall Street analyst has recently issued a scathing review of ContextLogic.
It’s important to be aware of what the experts have to say about the company, no doubt.
On the other hand, informed investors have the freedom to decide whether or not to listen to the skeptics.
Since the worst-case scenario seems to have already been priced into WISH stock, perhaps a rally is right around the corner.
A Closer Look at WISH Stock
It’s fun to remember the good times, isn’t it? ContextLogic’s IPO took place on Dec. 16, 2020, with the stock opening at $24 – a fair price, or so it seemed at the time.
There was an initial burst of trader enthusiasm as WISH stock climbed to a 52-week high of $32.85 on Feb. 1, 2021. Unfortunately, it was all downhill from there.
By the summer, the share price had slid to the $10 area. That probably seemed like a bargain, but there was more downside coming.
In the middle of October, WISH stock declined to around $5. So, are we witnessing the bargain of a lifetime or a falling knife that should be avoided at all costs?
Contrarians should be tempted to jump into the long side of the trade, but with caution. So, let’s conduct our due diligence now and see if ContextLogic is in good fiscal condition.
Strength in Logistics
Many people probably know ContextLogic as the owner of the Wish e-commerce platform. Yet, it appears that the company is shifting into a potentially lucrative area: logistics.
Consider this: in 2021’s second quarter, ContextLogic’s total revenue declined 6% year-over-year. A contributing factor was the company’s 29% year-over-year decline in Marketplace revenue. So, it seems that the Wish platform hasn’t been such a strong revenue driver lately.
In contrast, ContextLogic posted 126% year-over-year growth from Logistics revenue during 2021’s second quarter.
Moreover, the company is diversifying its merchant network outside of China, with more U.S. and Europe-based merchants.
Thus, during the second quarter, ContextLogic expanded its merchant network by 235% year-over-year in Europe and by 53% year-over-year in the U.S.
On top of all that, ContextLogic just announced a partnership with state-owned Spanish carrier Correos.
Acknowledging the Problems
It’s encouraging to learn that ContextLogic is expanding its logistics-market footprint internationally.
Alan Small, senior business development manager for Wish in Europe, explained, “We are delighted to be working with one of the world’s largest and most respected logistics companies to expand our presence in Spain.”
According to Small, “Spanish merchants have a lot to offer, particularly when it comes to high-quality toys and electronics.”
However, apparently, not everyone is impressed with ContextLogic’s international expansion efforts.
Oppenheimer analyst Jason Helfstein lowered his rating on WISH stock from “perform” to “underperform.” Helfstein also cut his price target to $4. It seems as if logistics-related issues in a particular world region could be problematic for ContextLogic.
“China accounted for substantially all marketplace/logistics in FY20, exposing Wish to a 393% increase in shipping costs,” Helfstein cautioned.
The analyst also observed a troublesome trend that could negatively impact ContextLogic’s bottom line.
“Further, with ad budgets shifting to Android, digital ad costs have remained elevated throughout 3Q, impacting customer acquisition/retention,” Helfstein warned.
The Bottom Line
There’s merit to Helfstein’s pessimistic arguments, I won’t deny it.
With the WISH stock price so harshly punished, though, contrarians should wonder whether the worst possible outcomes have already been priced in.
Only time will tell whether ContextLogic’s foray into the international logistics market will be successful in the long run.
If so, then the shareholders could enjoy unexpected but substantial returns on their investment.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.