Buzz about it on Reddit’s r/WallStreetBets subreddit may be fading. But that’s hardly a reason to dismiss ContextLogic (NASDAQ:WISH) stock as a “meme stock” where the opportunity has come and gone. Why? The fact that shares in the e-commerce play are trading on their fundamentals again is a good thing, not a bad thing.
“Meme momentum,” and the hype around its short-squeeze potential may have been enough to produce quick gains for nimble traders. As for those who approach it as a play on its comeback? The rewards could be much more substantial.
And that’s what ContextLogic is today, a comeback story. After seeing impressive growth in 2020, news of it anticipating slower levels of growth post-Covid is what pushed it down to the price levels currently seen today. It may seem like it’s hit a wall now. But there’s plenty to suggest it can get back into high-growth mode.
Once that happens? Shares stand to at least double from today’s prices ($10.31 per share). Take advantage of the opportunity, and dive in, before enthusiasm (and its stock price) rises once again.
Pessimism Pushed WISH Stock to Cheap Valuation
With the vaccine rollout, and the “recovery trade,” so far this year, e-commerce plays have mostly plateaued or traded sideways. Take a look at the 2021 performance of stocks like Shopify (NYSE:SHOP) and Wayfair (NYSE:W), and you can see that’s the case.
Yet few have fallen as hard as WISH stock has since its IPO last December. To some extent, this made sense. After all, the company went from posting high double-digit levels of growth, to projecting low single-digit revenue growth in the quarter ending June 30. However, there may be a silver lining to this market overreaction to the slowing of its growth train.
With so much pessimism priced-in, due to concerns about its decelerating growth, shares have fallen to a reasonable valuation. Perhaps not reasonable relative to its near-term financial performance. Still scaling up, analysts expect losses both this year and the next. Relative to its long-term growth potential, though? As one Seeking Alpha commentator recently noted, shares are cheap compared to rivals on a price-to-sales basis.
That is, cheap assuming its days of high growth are far from over. Some may believe it’s hit a wall. But if in the quarters ahead it can demonstrate it’s still a growth story, ContextLogic shares could gain tremendously.
Why ContextLogic Remains a Growth Story
There’s more than wishful thinking (pun intended) behind the belief that this company will soon get back to higher-than-average levels of revenue growth. Things may or may not have had taken a breather in the preceding quarter. We’ll know for sure on Aug. 12, when the company releases its second quarter results.
But looking at the last two quarters of 2021, and into 2022? The company has yet to take its foot off the growth. It continues to invest heavily in its growth. ContextLogic also continues to attract high-caliber talent for its management team, as seen from its recent hiring of Farhang Kassaei as chief technology officer.
Kassaei, formerly an exec at Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google unit, brings expertise that could allow the company to take its Core Marketplace and Logistics business segments to the next level.
Put it all together, and it isn’t farfetched to see it get back to year-over-year revenue growth in the mid double-digit percentage range. If this happens, don’t expect shares to maintain a discounted valuation for long. The stock may not be able to immediately get back to its high of $32.85 per share. But a 100% move, to just under $21 per share, is definitely attainable within the next year.
Buy Now, Before Sentiment Shifts Back to Positive
Focused too much on this quarter, and not on future quarters, Wall Street investors have taken a wait-and-see approach with WISH stock. Main Street traders took a liking to it for a while, as a vehicle for fast trading profits. But that angle has gone away, as seen from fading chatter about it on r/WallStreetBets.
But for investors interested in it as a bet that it gets back in high-growth mode? Buying now could result in solid 100% gain, if the scenario mentioned above plays out. Better yet, on a longer timeframe, shares could hit their past high, and perhaps go even higher. Anticipating eventual adjusted EBITDA margins in the 20-30% range, once it hits profitability, there will be even more to justify a higher valuation for ContextLogic shares.
This Thursday’s quarterly results may not suddenly change the sentiment around WISH stock. Yet in time, as it becomes clear this e-commerce play hasn’t hit a wall when it comes to growth, the negativity weighing it down today will dissipate.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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