WISH Stock: Avoid ContextLogic until it fixes its finances

  • ContextLogic (TO WISH) rallied more than 40% from its 52-week low, but this rally has all the hallmarks of a dead cat bounce
  • Fourth Quarter and Fiscal Year 2021 Financials Showed Weak Fundamentals, Continued Net Losses and Deterioration in Other Key Metrics
  • Investors should avoid buying the penny stock as the company is in decline

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ContextLogic (NASDAQ:TO WISH), an e-commerce company operating in Europe, North America, South America and more, has seen its shares rally by around 40% in the past month. But WISH stock is still down nearly 85% over the past year.

This rally could help stocks find a bottom after a bumpy year that took the stock price from above $15 to a 52-week low of $1.60. The fourth quarter and full-year 2021 financials showed the company is in serious trouble as several red flags make the short-term rally look likely to end soon.

For a rally to be sustainable, it needs to have a solid foundation…and sadly, that’s not currently the case for WISH stock.

Is WISH stock profitable?

The answer to that is that ContextLogic wants it to be a profitable business. Its March 1 fourth quarter earnings report showed a net loss of $58 million for the quarter ending December 31, 2021, 90% better than the net loss of $569 million in the same quarter a year ago. one year old.

For the full year 2021, ContextLogic reported a net loss of $361 million, lower than the net loss of $745 million for fiscal 2020.

Contextlogic was not profitable in all four quarters of fiscal 2021. What’s even worse for WISH stock is that the company was not profitable at all for the entire 2017-2021 period. .

If you’re looking for an e-commerce penny stock in the internet retail industry that shows consistent profits, WISH stock shouldn’t be on your list.

WISH Stock Fundamentals Show a Struggling Business

Some of the key metrics such as Monthly Active Users (MAU), Last 12 Months Active Buyers (LTM), Gross Margin and Free Cash Flow in Q4 2021 and Fiscal 2021 showed that ContextLogic has serious business problems.

In Q4 2021, revenue decreased to $289 million from $794 million in Q4 2020, and year-over-year MAUs were down 57.69% to 44 million, active buyers LTM fell 40% to 38 million and gross margin narrowed to 42% from 57%.

The same revenue and gross margin trend applies for the full year 2021. Revenue decreased 16% to $2.1 billion from $2.5 billion, and gross margin s narrowed to 53% from 63%.

An important key indicator, free cash flow, was also negative for the quarter and for the full year. For fiscal 2021, ContextLogic recorded free cash flow of -$953 million, compared to free cash flow of -$2 million for fiscal 2020.

These numbers reveal poor financial performance for Contextlogic and an urgent need to transform into a more sustainable and profitable business model.

Is WISH Stock a buy it now? No.

The financial report showed poor results for the fourth quarter of 2020 and fiscal year 2021. WISH stocks should be avoided, as the forecast for the first quarter of 2022 called for negative EBITDA in the range of -$70 million to – $60 million.

Slowing revenue growth, a cash burn problem, a shrinking gross margin, and continued net losses are more than enough fundamental reasons to avoid WISH stocks and seek value, growth, and profit. elsewhere.

At the date of publication, Stavros Georgiadis did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Stavros Georgiadis is a CFA charter holder, equity research analyst and economist. He focuses on US stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written various articles for other publications in the past and can be contacted at Twitter and on LinkedIn.

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