Investors who are still holding onto shares of ContextLogic (NASDAQ:WISH) stock should dump the stock now before there’s nothing left.
WISH stock plummeted 28% in the last month, bringing its total decline for the year to 71%. It’s flirting with the $5 mark, which would make it a penny stock.
Shareholders who are still holding on in hopes of a rebound should probably give up the ghost before the situation gets even worse for the e-commerce platform that continues to struggle in a crowded market that is dominated by the likes of Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY).
Founded in 2010, San Francisco-based ContextLogic runs the e-commerce site Wish that facilitates direct transactions between sellers and buyers. Sellers are able to list products on Wish and sell them directly to consumers. Wish manages payments on its site but does not stock any products or manage returns.
WISH stock had its initial public offering in December 2020 and since then it has been all downhill for the share price. Since the IPO, ContextLogic’s stock has fallen from $23.55 to nearly $5 per share.
Part of the problem has been a steady parade of analyst downgrades concerning WISH stock. Six Wall Street analysts downgraded ContextLogic’s stock since August this year. The latest downgrade came from research firm Oppenheimer on Oct. 4. In a particularly pessimistic report, Oppenheimer raised concerns about ContextLogic’s exposure to Asia, where supply chain bottlenecks and product shortages, particularly in Vietnam and Indonesia, are likely to cause big headaches for ContextLogic and users of its Wish e-commerce platform.
In its report on ContextLogic, Oppenheimer stated: “We believe the company is facing a perfect storm of negative challenges heading into Q4. China accounted for substantially all marketplace/logistics in FY20, exposing WISH to a 393% increase in shipping costs…”
The negative sentiment and drumbeat of downgrades have clearly weighed on WISH stock. While product shortages and supply chain bottlenecks have hobbled many companies this year, ContextLogic appears to be particularly vulnerable to the issue, with no immediate remedy in sight.
The sell-off of WISH stock kicked into high gear after the company reported unimpressive second quarter earnings on Aug. 12. ContextLogic’s revenues declined 6% on a year-over-year basis and its net loss grew to $111 million from $11 million in the year earlier quarter. ContextLogic’s stock fell 20% immediately after the earnings release.
The company noted in its second quarter results that it is struggling with a decrease in active buyers, increasing competition from physical stores, and higher digital advertising costs, among other problems.
Most analysts seem to agree that ContextLogic needs to turn a profit before it gets out of the doghouse and its stock turns around. However, no timetable has been given for the company to achieve profitability.
Instead, senior management is undertaking cost-cutting measures and trying to fix operational issues. Spending on advertising has been dramatically scaled back too. While it might help to slow the losses, it is doubtful that ContextLogic will be able to cut its way to profits. As long as the Wish e-commerce site is hamstrung by supply issues, the company will continue to struggle financially.
Meme Stock Status
Perhaps because it has been largely written off by Wall Street, WISH stock has garnered from retail investors who congregate on the r/WallStreetBets Reddit page. These retail investors managed to push ContextLogic’s share price 85% higher in June, albeit briefly. Within a few weeks, the stock had given up those gains and continued its downward spiral. While ContextLogic continues to be widely discussed on the Reddit boards, investors shouldn’t hold out hope that the shares will again be targeted for a big run higher.
Currently, there is only a 12% short position in WISH stock, which makes executing a short squeeze on the shares extremely difficult. Sustaining a short squeeze long-term would be nearly impossible, which is why the June rally was short-lived.
Adding to the diminishing sentiment surrounding ContextLogic is the fact that the company has been hit by a shareholder lawsuit. In the suit, investors claim that company insiders sold stock after the share price was driven higher by false growth projections. The shareholder lawsuit is yet another dark cloud hanging over the stock.
Don’t Buy WISH Stock
There’s no reason for investors to risk their capital on ContextLogic stock. With no bottom in sight, analysts downgrading the stock at every opportunity, and a growing number of problems clouding the company’s future, ContextLogic is a bad investment, plain and simple.
If the best that can be hoped for is that the shares will again be pumped and dumped by the r/WallStreetBets crowd, then it’s not a sound investment. Until ContextLogic can resolve its supply chain issues and improve its finances, investors should stay away. WISH stock is not a buy.
On the date of publication, Joel Baglole 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.