Is ContextLogic (WISH) Worth Buying After a Disappointing IPO?

Recently, the IPO market has been on fire. However, there have been a couple of laggards including ContextLogic (WISH). Patrick Ryan breaks down why it's been weak and whether it's an opportunity.

ContextLogic (WISH) recently went public through its IPO proved underwhelming. WISH started at $24, dropped to $20.05, hit $23.55 by the end of its first trading week, and has since slid down to $22.41. The stock received considerable hype before going public as it is a tech company with nearly $2 billion in revenue. In short, this e-commerce platform makes it easier for sellers and buyers to connect. The company has been in business for nearly a decade. Let's take a look at whether WISH is worth a position in your portfolio after its disappointing debut.

A Closer Look at WISH’s Business

WISH is a worldwide commerce business. The purpose of the company is to provide buyers with access to a litany of diverse products at affordable prices and also connect merchants with easy access to millions of buyers across the globe. The WISH platform is highlighted by cutting edge technology and data science that facilitates a mobile shopping experience that proves mutually beneficial to both buyers and sellers. In other words, WISH makes money by enhancing the buying and selling experience for consumers and merchants, respectively.

Why WISH Isn’t Living up to Expectations

When news first broke that WISH would go public, respected members of the investing community started up the hype machine simply because the company has billions in revenue and considerable long-term potential. However, WISH has not soared as many experienced investors predicted. The stock’s underwhelming performance out of the gate has given some investors pause, forcing them to re-think whether WISH is truly worthy of holding long-term.

The rise in shipping costs combined with a growing investor preference for WISH’s competitors is making it difficult for the stock to meet expectations. The unfortunate truth is the discount internet retail segment is growing increasingly competitive with each passing day. WISH executives counter this criticism by insisting investors should focus on the company’s long-term outlook instead of harping on short-term volatility.

The question is not whether there is considerable growth potential in catering to the middle class and lower middle-class customers; rather, the question is how much of this market share WISH can capture in a reasonable amount of time. As noted above, unexpected elevated overhead costs combined with a rise in competition and a sales slowdown is causing many investors to question whether WISH is a solid long-term hold.

Is WISH a Victim of Bad Timing?

There is an argument to be made the lack of interest in WISH’s debut is partially attributable to other IPOs being jammed into the final month of the year. Airbnb (ABNB) and DoorDash (DASH) recently debuted, following Palantir (PLTR) and Snowflake (SNOW). Each of these high-tech IPOs has drawn considerable investor attention, overshadowing WISH in the process. It is particularly concerning to note that each of these IPOs performed better than WISH during their debuts.

If WISH went public three months earlier, the stock might have popped immediately upon its debut and possibly be trading 10% to 20% higher than its current price of $22.37. In other words, WISH might have gotten lost in the IPO shuffle. It is quite a possible WISH turns out to be a sleeping giant that awakens down the line, possibly at some point in ’21 after the recent IPO dust has a chance to settle.

WISH’s Competition

WISH’s road to riches is becoming increasingly challenging as that many more competitors enter the market. Several serious competitors have arisen throughout the United States and Europe. In fact, there is a chance WISH will struggle to compete with Amazon (AMZN), especially if AMZN pivots more toward selling to cost-conscious buyers. Other WISH competitors include Walmart, Alibaba, Etsy, and Hollar.

Buy, Sell, or Hold?

Hold. WISH is trading at a four multiple of its ’22 projected sales. This is concerning as it is a higher multiple than AMZN is trading at. AMZN currently trades around a 3.5 multiple of its ’21 estimated sales. Furthermore, eBay (EBAY) trades around 3.4 multiple of its upcoming year’s sales estimates. WISH very well might be overvalued at $22.34 per share. If WISH dips down into the teens, consider establishing a position at that point.

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WISH shares rose $0.07 (+0.33%) in after-hours trading Wednesday. Year-to-date, WISH has gained 4,850.35%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.


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