Is This Internet Stock Too Cheap To Ignore Right Now?

Is This Internet Stock Too Cheap To Ignore Right Now?

Shares of ContextLogic (WISH) have been in freefall this year, dropping more than 77% year-to-date. Although the stock is trading at a discount to its peers, uncertain macroeconomic conditions add further gloom to the company’s growth prospects. So, is it wise to invest in the stock now? Read on to learn our opinion…. – StockNews

Mobile e-commerce company ContextLogic Inc. (WISH) is down 77.6% year-to-date and 82.4% over the past year to close out the last trading session at $0.70. The stock is trading 83% below its 52-week high of $3.99, which it reached on Nov. 29, 2021.

WISH’s Price/Sales forward of 0.84x is 2.8% lower than the industry average of 0.87x. The forward Price/Book of 0.92x is 64.8% lower than the industry average of 2.61x.

In the third quarter, the company’s monthly average users (MAUs) fell 60% year over year to 24 million. The number of active LTM users (last twelve months) also fell 65.2% year-on-year to 16 million. The company’s market revenue was down 77% year-over-year to $51 million, while its logistics revenue was down 50% year-over-year to $74 million.

WISH’s revenue decline for the third quarter can be attributed to lower marketing spend amid high inflation and rising interest rates and the new pricing practice introduced by the company that went into full effect during the last quarter. The company expects an adjusted EBITDA loss of between $90 million and $110 million in the fourth quarter.

With inflation remaining uncomfortably high and the Fed’s eventual interest rate expected to be higher, the economy is expected to slip into recession early next year. This is expected to significantly affect consumer spending, putting further pressure on WISH’s financial position.

In addition, the company also received a non-compliance letter from NASDAQ on October 28, 2022, as the NASDAQ Listing Rule requires publicly traded securities to maintain a minimum bid price of $1 per share.

Here’s what could affect WISH’s performance in the coming months:

Weak finances

For the fiscal third quarter ended September 30, 2022, WISH revenue was down 66% year over year to $125 million. Adjusted EBITDA loss increased 216.7% year over year to $95 million. The company’s total assets fell 29% to $911 million, compared to $1.28 billion for the fiscal year ended December 31, 2021.

Gross profit decreased 79.6% year over year to $34 million. Also, net loss increased 93.7% year over year to $124 million. In addition, loss per share increased 80% year over year to $0.18.

Unfavorable analyst estimates

WISH earnings per share for fiscal year 2022 and 2023 are expected to remain negative. Revenue for fiscal 2022 is expected to decline 71.2% year over year to $600.02 million.

Low profitability

WISH’s 12-month leveraged FCF margin is negative, compared to the industry average of 1.35%. Similarly, the net profit margin over the last 12 months is negative compared to the industry average of 5.12%. Also, the EBITDA margin over the last 12 months is negative compared to the industry average of 11.05%.

POWR ratings reflect bleak outlook

WISH has an overall F rating, which is equivalent to Sell in our POWR ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor optimally weighted.

Our proprietary rating system also evaluates each stock based on eight different categories. WISH has a D grade for quality consistent with its poor profitability.

It has a D rating for Sentiment, in line with analysts’ weak estimates.

WISH is number 54 out of 58 stocks in the F rating internet industry. click here to access WISH’s assessments for growth, value, momentum and stability.

It boils down

WISH is trading below the 50-day and 200-day moving averages of $0.79 and $1.54, respectively, indicating a downtrend. Despite trading at a low valuation, consumer-focused companies like WISH are expected to be hit hard by the projected recession next year.

Analysts are taking a bearish look at WISH’s outlook. Given the company’s weak financials and low profitability, the stock is now best avoided.

How Does ContextLogic Inc. Work? (WISH) Stacking up against his peers?

WISH has an overall POWR rating of D, which equates to a sales rating. Therefore, one should consider investing in other B-rated Internet stocks (Buy), such as Yelp Inc. (HAPPY), trivago N.V. (TRVG), and Expedia Group, Inc. (EXP).

WISH shares traded at $0.70 per share Thursday morning, up $0.02 (+2.51%). Year-to-date, WISH is down -77.49%, versus an increase of -14.29% in the benchmark S&P 500 index over the same period.

About the author: Dipanjan Banchur

Since he was in elementary school, Dipanjan was interested in the stock market. This led to obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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