There’s Neither Context nor Logic to Justify Holding ContextLogic Stock

Since the onset of the Covid-19 pandemic, e-commerce has been a red-hot market sector. Folks who invested in California-based ContextLogic (NASDAQ:WISH) were undoubtedly hoping to capitalize on the e-commerce renaissance of the 2020s. Unfortunately for them, WISH stock has been a poor performer.

Wish, a ContextLogic company a worldwide online shopping app.
Source: sdx15 / Shutterstock.com

It’s a challenging time for ContextLogic as the company is in a transitional phase. Specifically, Piotr Szulczewski will be stepping down from his position as ContextLogic’s chief executive officer (CEO). Szulczewski is the company’s founder and he served as its CEO for over a decade.

The press release also reported other executive-level changes over the prior 12 months. Yet, it appears that Wall Street isn’t too impressed, as the WISH stock price has been on a continuous downward trajectory for nearly a year.

Should the investors hope for a turnaround? As always, hope isn’t a viable trading strategy — and while e-commerce is a lucrative sector overall, ContextLogic simply isn’t able to reap the benefits and pass them on to the shareholders.

WISH Stock at a Glance

To recap the price action, ContextLogic’s initial public offering (IPO) took place on Dec. 16, 2020. WISH stock opened at $24 and climbed to a 52-week high of $32.85 on Jan. 28, 2021.

Traders who chased the stock in the $30s were punished without mercy. The share price fell below $10 during the summer of 2021, and then below $5 in November.

Believe it or not, WISH stock was trading near $3 in early January of 2022. Any hopes of getting back to the prior peak price — or even the IPO price, for that matter — faded a long time ago.

In other words, if you’re invested in ContextLogic, the trend is definitely not your friend. There are no meaningful support levels to speak of here, as the stock hasn’t convincingly bounced off of any price points.

Price vs. Value

There’s an old saying that’s been attributed to investing legend Warren Buffett. It goes something like this: price is what you pay, but value is what you get. We could certainly apply this concept to WISH stock. Just because the stock is cheap now doesn’t mean that it’s a good value.

Buffett’s maxim could also be applied to the products that people buy online. E-commerce is great, but one of the pitfalls is that typically, shoppers don’t get to see a product up close or touch it before buying it.

Therefore, trust is of paramount importance. A major problem with the Wish e-commerce platform which ContextLogic owns is that its products are mostly very cheap-looking and it’s hard to trust that they’ll be a good value.

With that in mind, it wasn’t difficult to read between the lines when ContextLogic announced its “plans to improve product quality on the platform.”

We can surmise that there must have been a large number of customer complaints. Otherwise, ContextLogic wouldn’t feel the need to enact a “broader effort to improve user trust and increase customer retention.”

Cheaper Isn’t Necessarily Better

While ContextLogic is apparently struggling to repair its trust issues, the company’s financial profile certainly hasn’t improved. Clearly, facilitating the sale of cheap goods isn’t necessarily an ideal business model. Or at least, ContextLogic hasn’t succeeded in monetizing its business.

The company’s third-quarter 2021 results prove this point. ContextLogic revealed that its revenues had dropped 39% year-over-year during that quarter.

Wish Executive Chair Jacqueline Reses proclaimed, “We have made good progress in advancing Wish in a positive direction toward long-term growth and profitability.” Does the data support this claim, though?

In the nine months ending on Sep. 30, 2020, ContextLogic incurred a net earnings loss of $176 million. A year later, the company’s nine-month net loss was $303 million. So, the “good progress” and “positive direction” claims don’t seem to hold water.

The Takeaway on WISH Stock

It’s not enjoyable to order a product online only to receive something of inferior quality. Similarly, folks who bought WISH stock because it seemed cheap were disappointed to discover that it would only become cheaper.

At the end of the day, ContextLogic reinforces Buffett’s lesson about price versus value. Given the company’s inability to monetize the sale of cheap products, investors should seek real value elsewhere.

ContextLogic currently gets a grade of “F” in my Portfolio Grader.

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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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