San Francisco-based ContextLogic Inc. (WISH) operates as a mobile e-commerce company in Europe, North America, South America, and internationally. WISH was ranked #3 among the most discussed stocks on Wallstreetbets at the time of writing this article.

The stock has had weak momentum so far this year. WISH shares have plummeted 70% in price year-to-date and 44.4% over the past three months to close its last trading session at $5.47. The stock is currently trading near its 52-week low of $4.61.

Recently, the company shared its plans to improve product quality on its e-commerce platforms. The company plans to focus on discovery commerce to attract the next generation of buyers and brands. "We believe the future of e-commerce will be built around the serendipitous discovery of products. By acting as a hub for inspiration, we hope to provoke interest and shape demand and, ultimately, be the pioneers of the next generation of commerce," said Tarun Jain, Chief Product Officer at WISH. Nevertheless, the company’s bleak financials could be a concern.

Even though the global e-commerce share of total retail sales has been rising for several months, WISH has failed to capitalize on the industry tailwinds. The company’s revenues have declined 39% year-over-year to $368 million in its last reported quarter. And analysts expect its revenues to decline 54.8% in the current quarter and 15.5% in the current year. Also, its EPS is expected to remain negative at least until the following year.

Click here to check out our E-commerce Industry Report for 2021

Here is what could shape WISH’s performance in the near term:

Mixed Valuation

In terms of forward Price/Sales, WISH is currently trading at 1.41x, which is 7.7% higher than the 1.31x industry average. Also, its 4.35 forward Price/Book ratio is 18.8% higher than the 3.66 industry average. However, WISH’s 0.85x forward EV/Sales is 43.5% lower than the 1.50 industry average.

Lawsuits

Law firm Robbins LLP is investigating whether the officers and directors of WISH have violated the Securities Act of 1933 or breached their fiduciary duties during WISH’s initial public offering (IPO) last December. In addition, Lifshitz Law Firm, P.C. announced that a class action was filed against WISH on the grounds of materially false and misleading statements about the strength of its business operations and financial prospects by overstating its then-present monthly active users (MAUs) and MAU growth trends.

Weak Third-Quarter Earnings Report

WISH’s gross profit declined 54.2% year-over-year to $167 million in its  fiscal third quarter, ended September 30. Its loss from operations stood at $63 million, down 19.2% from the same period last year. Its net loss decreased 35.4% from its year-ago value to $64 million, while its loss per share declined 89.1% year-over-year to $0.10. In addition, its adjusted EBITDA came in at a negative $30 million.

POWR Ratings Reflect Bleak Prospects

WISH has an overall D rating, translating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, consistent with its mixed valuation.

WISH has a D grade for Stability, which is in sync with its beta of 1.14.

Among the 77 stocks in the Internet industry, WISH is ranked #49.

Beyond what I have stated above, one can also view WISH’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Internet industry here.

Bottom-Line

WISH’s operational inefficiencies have resulted in the company incurring losses in its past few quarters. Even though WISH plans to focus on discovery commerce while improving product quality on its platforms and forming strategic partnerships to expand its market reach, the company requires immense sales growth to reverse its losses. Thus, considering its current financial weakness and high volatility, we think WISH is best avoided now.

How Does ContextLogic Inc. (WISH) Stack Up Against its Peers?

While WISH has an overall POWR Rating of D, one might want to consider investing in the following Internet stocks with a B (Buy) rating: Travelzoo (TZOO), Yelp Inc. (YELP), and Alphabet Inc. (GOOGL)

Click here to check out our E-commerce Industry Report for 2021

WISH shares rose $0.02 (+0.37%) in premarket trading Friday. Year-to-date, WISH has declined -70.01%, versus a 25.54% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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