ContextLogic (WISH) stock has had a dismal run as a publicly traded company. It's down a massive 68 percent YTD. WISH stock has seen some spikes in between including when Reddit traders got their act together. Will the stock recover and go back up anytime soon?
WISH priced the IPO at $24 and currently trades at a quarter of the IPO price. It's among the worst IPOs of 2020. The underperformance looks even stark if we consider that most of the IPOs are at least trading above their IPO price even as most have come off their highs.
Why is WISH stock going down?
Before we analyze whether WISH stock can recover, let’s first see why the stock has been in a freefall. WISH stock has been going down for multiple reasons. It has been the victim of the sell-off in growth names. Company-specific factors, including the resignation of its CFO Rajat Bahri, didn't help matters.
ContextLogic’s second-quarter earnings in August missed the mark for almost every metric. The company’s revenues fell in the quarter, while the net losses swelled tenfold. The operating performance was even dismal and active buyers and user retention fell in the quarter. The company said that the slide in revenues has continued in the third quarter and they fell 40 percent in July.
WISH stock forecast
Analysts went on a downgrading spree after ContextLogic reported its second-quarter earnings. Currently, it has two buy ratings, six hold ratings, and two sell ratings from the analysts polled by TipRanks. Its average target price of $9.81 represents an upside potential of over 50 percent from these levels.
Will WISH stock recover?
The worst seems to be over for WISH stock and it should recover soon. While the second-quarter earnings were a disaster, there was a silver lining. ContextLogic is cutting down on advertising expenses and will focus on retaining existing users.
While this would mean that its topline growth might be impacted, it looks like a well-intended course correction amid the perennial losses.
Will WISH stock go back up?
WISH stock seems to have bottomed and should go up. Especially if you're willing to take a long-term view, the stock should go back up. The company is an e-commerce play and currently trades at a tempting valuation with an NTM EV-to-sales multiple of only 1.2x.
While the valuations are depressed for a reason, including concerns about the company’s perennial losses, uneven growth, and poor operating metrics, it looks too cheap to ignore at these prices.
Can Reddit and WallStreetBets take ContextLogic stock higher?
WallStreetBets has been successful in triggering a short squeeze in many stocks. While most of them tumbled from the highs, most settled at a higher price level. Now, WISH doesn't have a loyal army of shareholders like GameStop and AMC Entertainment.
Both of these companies count retail (including Reddit) investors as their main shareholders and have been taking steps to build loyalty among them.
GameStop has even stopped taking analysts' questions and instead streams the earnings call in a bid to connect directly with retail investors. AMC has gone a step further and is offering free popcorn to shareholders at the theaters.
Coming back to WISH, it might not need an army of “apes,” as AMC bulls call themselves, to move higher. If the company can offer an incremental improvement in financial and operating metrics and a clear path towards the future, it can help buoy sentiments and help it win over investors. A little "help" from Reddit traders wouldn't hurt WISH stock either.