ContextLogic Has Reached Peak Bearishness Making It Worth Watchlisting

I’ve written about ContextLogic (NASDAQ:WISH) stock multiple times in the past.

The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.
Source: sdx15 /

Despite me thinking WISH stock was trading at bargain prices then, the market continues to send it even lower.

WISH stock remains on a steep downtrend as it seems to have lost favor from investors.

Since my last article, WISH stock has lost nearly 50% of its value. There are a few reasons to be optimistic regarding a reversal, but there are some signs that WISH stock may be approaching what I like to call “peak bearishness.”

Peak bearishness is when lot of people are so bearish on a stock that it becomes oversold. This makes it easier to catch bears by surprise when the situation turns around and the stock makes a move higher.

One sign that we may be nearing an oversold situation with WISH stock is the new note from Oppenheimer.

The investment bank recently downgraded its rating from a “Perform” to an “Underperform” with a price target of $4. This sent the stock to new all-time lows.

Analyst Jason Helfstein mentions a coming “perfect storm of negative challenges.”

“China accounted for substantially all marketplace/logistics in FY20, exposing Wish to a 393% increase in shipping costs,” he wrote in a note. “Further, with ad budgets shifting to Android, digital ad costs have remained elevated throughout 3Q, impacting customer acquisition/retention.”

The Supply Chain Crisis and WISH Stock

The increase in shipping costs is a challenge all firms are facing. ContextLogic is particularly vulnerable given its product mix.

However, a lot of these challenges are already reflected in the WISH stock price. For sure, if the stock was trading at the IPO price of $24 there would be some concern. But at the bargain-basement price of $5, investors have a large margin of safety.

This is especially true if this supply chain crisis proves to be temporary. I like to reiterate that this supply chain crisis affects every single company in the U.S.

President Joe Biden is feeling the heat from political opponents over this crisis. Therefore, I believe it will be the focus of the U.S. government and private businesses to remove all of these bottlenecks.

The Biden administration announced a new policy aimed at unclogging the Port of Los Angeles.

The White House will work with major retailers and ports on a “90-day sprint.” The Port of Los Angeles, one of the biggest in the U.S., will be shifting to a 24/7 schedule.

Retailers like Walmart (NYSE:WMT) have committed to moving more of their goods at night in offpeak hours. Efforts like this should bring the supply chain of the country back to normal within a few months.

A return to normalcy would reduce the bear-case for WISH stock.

Valuations Are Very Compelling

Due to the decline in share price WISH stock is trading at extremely cheap valuations. The company has no debt and has a cash position of $1.4 billion. This translates to a cash per share of about $2.23.

Given that the company runs an asset-light business model at a share price of $6, buying now means you get the core business for $2.77.

ContextLogic’s logistics business alone is worth more than that. Adjusting the P/S to takeout this large cash portion, WISH stock is trading at a P/S of 0.65x.

The company still has a healthy business with plenty of sales even if user growth stalls as analysts fear. Resolving the supply chain crisis could also surprise on the upside thus sparking a run-up on WISH stock.

I believe investors should consider adding WISH stock to their watchlists.

On the date of publication, Joseph Nograles 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 Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.

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