ContextLogic Stock is a Sinking Ship
InvestorPlace - Stock Market News, Stock Advice & Trading Tips With both company insiders, and investors on the sidelines, lacking confidence in the WISH stock turnaround, there's little "logic" in...
Many stocks popular with investors early last year have fallen out of favor in recent months. But few to the level seen with ContextLogic (NASDAQ:WISH). Once trading for as much as $32.85 per share, WISH stock now changes hands for around $2.7 per share. That’s a more than 91% drop from its all-time high.
So, what happened here? The “story” behind this stock crumbled. The company, which operates the Wish.com e-commerce platform “crushed it” during the pandemic, posting very impressive levels of revenue growth. But then, as 2021 played out, it became clear that it wouldn’t see the kind of success it saw in 2020.
Growth slowed down, then the situation got worse. Revenues declined, as it struggled following the start of the pandemic recovery. Last summer, the company announced its plans to turn around the ship. Yet with a long time horizon before results would possibly begin to improve, investors continued to abandon this ship.
And now, even insiders are making their exit. In short, it’s clear that things will more likely than not keep on going in the wrong direction. It’s also clear that you should avoid this stock. Even if it appears to be a possible comeback/turnaround play.
WISH Stock: What Went Wrong
Going public in December 2020, ContextLogic was first viewed as a successful e-commerce company with a bright future ahead of it. Like other high profile companies in this industry, it was reporting strong results, thanks to the tailwinds online retail received from the coronavirus pandemic.
Although WISH stock pulled back a bit after its debut, shares moved higher in early 2021. After that, shares sold off again. Then, starting in the spring, the narrative really began to unravel.
First, when it released results and guidance for its fiscal first quarter (ending March 31), ContextLogic reported outlook that came in below sell-side consensus. This resulted in a sell-off that pushed shares down to single-digit levels for the first time. Around this time, the short-sellers began to pile into it. Some may say this resulted in the stock becoming a “short squeeze” play, attracting the Reddit trading community. It’s not for certain, yet this would explain why the stock experienced a short-lived rally in the early summer.
However, after that partial rebound, worsening fundamentals put it back on a downwards trajectory. On Aug. 12, the company reported quarterly results again. Surprising the market, the company reported a year-over-year drop in sales, and wider-than-expected losses. In a letter to shareholders that accompanied the results, chief executive officer Piotr Szulczewski laid it all out.
He discussed how the company’s business model, which focused largely on heavy ad spending to bring in customers, no longer worked post-lockdowns. Along with this, he announced a plan of action to get ContextLogic out of its predicament.
Unfortunately, based on what we’ve seen so far, there’s little hope that this game plan will succeed.
There’s Little Confidence in ContextLogic’s Turnaround Plan
When first announced, the plan to turnaround Wish.com, and in turn, WISH stock, sounded solid. It hinged on moving beyond its ad-focused customer acquisition strategy, replacing it with one where the site built up a user base of regular shoppers. Largely, by improving the quality of items sold on its site.
The catch, though, was that it was going to take time for this plan to (possibly) start to pay off. It wouldn’t be until the second half of 2022 that results would start to improve. In other words, things would get worse before they would get better.
That’s exactly what played out in the following months. For the September quarter, total revenue fell 39% year-over-year, as it began to dial down its marketing costs. Worse yet, the company opted not to provide guidance for the fourth quarter. It did, however, hint it was going to be a tough quarter. Despite falling during the holiday shopping season, management expected results to fall on a sequential basis.
Sure, some may see this and think it’s simply a “darkest before the dawn” situation. But based on other developments that have played out since its last earnings report, I would bank on the situation getting even worse.
The Verdict on WISH Stock
With its turnaround uncertain, investors have jumped ship. The same goes for those who have greater knowledge of what lies ahead for ContextLogic. On the same day it last released numbers, Piotr Szulczewski announced he was exiting the CEO role. Other members of the C-suite, plus board members, have been cashing out of shares. Per Nasdaq.com, insider sales have vastly exceeded insider purchases over the past three months.
With both company insiders, and investors on the sidelines, lacking confidence in its turnaround, there’s little “logic” in making that wager yourself.
WISH stock gets an “F” rating in my Portfolio Grader.
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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