One year ago, it seemed foolish to say that ContextLogic (NASDAQ:WISH) stock went public at the wrong time.
At that point, e-commerce was one of the hottest segments of the economy.
The conventional wisdom opined that consumers wouldn’t fully return to brick-and-mortar retail and that attitude would continue even went that option was available to them. That optimism was reflected in WISH stock which climbed to more than $30 per share a little over a month after going public.
At that time, however, the full effect of the supply chain crisis was not fully known. Some analysts warned that the scope of the problem was not fully understood, but many others believed it was a transitory problem.
However, if we’ve learned one thing about transitory problems is that they have a way of becoming more than transitory.
As long as the supply chain crisis persists, it’s nearly impossible to get an accurate read on ContextLogic or WISH stock.
On the one hand, I can understand the bears who look at the company having two consecutive quarters of declining revenue. In its most recent quarter, ContextLogic missed on both its top and bottom lines. And the company has missed analysts’ earnings estimates every quarter since going public.
That’s not an ideal way to endear yourself to investors or analysts. The analyst community has been bearish on WISH stock since it released earnings.
However, despite numerous downgrades and lowered price targets, the consensus price target suggests that WISH stock could be trading for more than $14 a share in 12 months. It trades at barely $5 today.
However, this is where context becomes important. When you look at other e-commerce stocks, you can see a similar story.
Does this mean e-commerce has become less attractive? I don’t see evidence of that. The reality is that the pandemic helped create unique conditions for the supply-demand discrepancy that exists. It also means that the company’s model that focuses on lower prices will take a back seat to availability in the short term.
A Bottleneck That’s Not Going Away
Interviewed on Fox Business, the executive director of the Port of Los Angeles, Gene Seroka, commented about the tens of thousands of ships that are waiting to offload their cargo.
“We’ve got about half million 20-foot equivalent units, which is 250,000 containers, they are about two weeks’ worth of work at the largest port in the country,” he said.
This backlog, which accounts for approximately one-quarter of all American imports is creating wait times for ships to unload of up to three weeks.
I understand that ContextLogic’s primary audience is not the United States. But if the supply chain in the United States is being choked off, you have to imagine that the same is true in the developing world which makes up the company’s primary audience.
I’ll leave it to others to debate the root causes of the supply chain crisis. I expect that the American consumer will adapt. They have a strong track record of doing just that. This may create other issues for the economy in general and companies like ContextLogic in particular. However, those problems are for another day.
WISH Stock Will Require a Lengthy Wait
I agree with Bret Kenwell who said he wouldn’t be shorting a stock that’s down 75% from its initial closing price. However, I would add that without a clear idea of when the supply chain bottleneck will be broken up, I don’t see a reason to buy it either.
I understand that investors may have FOMO. They want to make sure they own WISH stock so they can be on the ground floor when (and if) the stock moves higher. But the reality on the ground is that investors have plenty of time until the supply chain gets back to normal. I’ll wait until I see more evidence of that before I consider a position.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.