Down 50% in 2021, is ContextLogic a Buy? The share price of leading e-commerce platform ContextLogic (WISH) has plunged more than 50% year-to-date amid growing concerns surrounding the company's bleak performance in its last reported quarter. Although WISH's expanding logistics capabilities and differentiated product offerings could boost its growth in the long term, near-term headwinds could cause the stock to suffer a further pullback. Read more to find out.

ContextLogic Inc. (WISH) is a mobile e-commerce company that operates in the United States and internationally. Its e-commerce platform connects users to merchants and offers marketplace and logistics services to merchants. The stock has declined 27.6% over the past month and 64.3% over the past three months. In fact, so far this year, WISH's shares have tumbled 51.9% in the wake of substantial losses reported by the company in its last quarter.

The stock is currently trading at $8.78, which is 73.3% below its 52-week high of $32.85.

Despite WISH's efforts to diversify its product offerings and robust demand on the company's Wish app that could drive growth in the long run, the near-term headwinds related to class action lawsuits filed against the company could be a continuing cause of concern for investors. In addition to that, its weak financials make matters worse.

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

Here is what we think could influence WISH's performance in the near term:

Strategic Partnership

Last month, WISH agreed to a strategic collaboration with South Africa Post Office (SAPO) to create an efficient customer experience and provide streamlined cross border logistics to the company's growing user base in the region. Since the South African market is a vital business opportunity for the company, this partnership could strengthen its logistic capabilities and enable WISH to better serve its customers.

Class Action Lawsuits are Concerning

On May 18, Robbins Geller Rudman & Dowd LLP filed a class action lawsuit against WISH on behalf of the company's shareholders in connection with the company's IPO. Also, The Schall Law Firm, a national shareholder rights litigation firm, recently announced that it is investigating claims on behalf of WISH investors for a potential securities law violation and breach of fiduciary duty. The securities class action lawsuits and investigations could negatively impact the stock's price in the coming months.

Favorable Analyst Estimates

A consensus EPS estimate for the current year indicates a 90.5% improvement year-over-year. Also, analysts expect the company's EPS to rise 62.5% in its fiscal year 2022. WISH's revenue is expected to increase 23.9% from its year-ago value to $3.15 billion in the current year. In fact, the Street expects the company's annual revenues to rise 20.5% year-over-year to $3.79 billion next year.

Disappointing Financials and Mixed Profitability

WISH's net revenue increased 75% year-over-year to $772 million in the first quarter, ended March 31. However, its net loss increased 93.9% from its year-ago value to $128 million. The company's adjusted EBITDA came in at negative $79 million, while its free cash flow for the quarter came in at negative $354 million, compared to $129 million in the same period of the prior fiscal year.

The company's 60.8% trailing-12-month gross profit margin is 78.3% higher than the 34.1% industry average. Also, its 9.3 % levered free cash flow margin is 21.1% higher than the 7.7% industry average. However, its trailing-12-month EBIT margin, ROTC and ROA are negative 24.5%, 64.3% and 40.4%, respectively.

POWR Ratings Reflect Uncertain Prospects

WISH has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. WISH has a C grade for Growth and Value. The company's weak growth in its financials is in sync with the Growth grade. Its 7.95x Price-to-Book ratio, which is 113.2% higher than the 3.73x industry average, justifies the Value grade.

Also, it has a C grade for Quality, which is consistent with the stock's mixed profitability.

In addition to the grades we've highlighted, one can check out additional WISH ratings for Sentiment, Stability and Momentum here.

WISH is ranked #38 of 71 stocks in the D-rated Internet industry.

There are several top-rated stocks in the same industry. You can access them here.

Bottom Line

WISH's strategic collaborations and growing customer base could help the company generate substantial profits in the long term. However, WISH's stock has declined 51.9% year-to-date. The lawsuits against the company and its bleak recent financials could make investors' anxious about the stock. So, we think investors should wait for a little more certainty about the company's prospects before investing in the stock.

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

WISH shares fell $0.32 (-3.64%) in premarket trading Tuesday. Year-to-date, WISH has declined -51.48%, versus a 11.52% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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