It’s paid to follow meme stocks. Several obscure names skyrocketed this year. But now that the momentum is dissipating, value investors have the opportunity to pick their spots. One name that should be on everyone’s radar is ContextLogic (NASDAQ:WISH) stock, which has shed 24.5% of value in the last month.
The logo and information for the Wish (WISH stock) mobile app are displayed on a smartphone.
Source: sdx15 / Shutterstock.com
ContextLogic is an e-commerce play targeting the value-conscious consumer.
In 2020, global retail e-commerce sales amounted to $4.28 trillion and were expected to grow to $5.4 trillion in 2022 per Statista.
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A large chunk of these numbers will represent the value-conscious consumer, which is not looking for luxury or high standard, rather a bargain with satisfactory quality. This is a competitive advantage for ContextLogic over larger peers.
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On top of this, as Mark Hake points out in this excellent article, Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA) and eBay (NASDAQ:EBAY) all are significantly more expensive than ContextLogic, which is just the right price after a near-30% drop.
WISH Stock: An Exciting E-Commerce Play at a Discount
In 2020, ContextLogic’s discovery-focused app was also one of the most downloaded shopping apps in the U.S., ranking third behind Amazon and Walmart (NYSE:WMT) with 30 million downloads.
Globally, it finished behind Amazon and Shopee, a Singaporean e-commerce online shopping platform popular in Southeast Asia and Taiwan.
Per an S-1 filing, the company connects more than 100 million monthly active users in over 100 countries to over 500,000 merchants offering roughly 150 million items from mostly Chinese vendors.
A vast majority of purchases take place through the mobile app. This is a great model to attract and cater to lower-income consumers that may only have internet access through their phones.
Moreover, 75% of WISH users have a household income below $75,000. So, investors worried that high-end products do not feature prominently on the app should rest easy.
WISH benefits from an asset-light model and a user-driven platform. Customers can take advantage of a scrollable personalized feed tailored to consumer interests.
Per the 2020 WISH 10-K filing, over 70% of sales involve zero search queries. And with WISH spending 67% of its 2020 revenue on marketing and sales, expect this number to keep growing as the e-commerce company maximizes the average revenue per user (ARPU).
Chinese Vendors Not a Cause for Concern
One concern investors may have when pouring their capital into WISH stock could be the sale of potentially low-quality products offered by merchants.
Nothing erodes trust like faulty products, but the company has you covered there as well.
ContextLogic has grown its monthly active users (MAUs) to 108 million in 2020 from just 21 million MAUs since 2015. The bedrock of this growth has been an ever-evolving quality control process. ContextLogic requires extensive documents and verification to register merchants and is cracking down on counterfeit goods.
Concerns regarding potential escalation in the U.S.-China trade war are real, but the present administration is employing a softer approach.
ContextLogic’s sell-off is a great opportunity to increase exposure to a fast-growing e-commerce performer at a discount. The upside is too good to ignore. Almost all business verticals are expected to grow multifold in the next few years.
The company has $2 billion in cash post-IPO and no long-term debt. Most of its liabilities are current, so there are no liquidity issues in the near term. ContextLogic is also close to turning cash flow positive.
Competition in e-commerce is tough, but Millennials and workforce-entering Gen Z looking for affordable products are a huge demographic.
With extreme bargains, a “treasure hunt” experience, and an easy-to-use app, they will continue to flock to ContextLogic. It goes without saying that this will lead to substantial revenue and margin growth. WISH stock will, in turn, be a net beneficiary.
Reddit mania propelled shares to $15 from a 52-week loss of $7.52 per share. Considering a short interest of 18.9%, investors should not hold their breath for another short squeeze. But if they are looking for a long-term investment, WISH stock is a tantalizing option among a sea of overpriced tech stocks.
On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
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