- Like ContextLogic (TO WISH) is struggling, WISH stock continues to vibrate around its all-time low close.
- WISH is now a penny stock, down 50% so far in 2022 and down from its all-time high in 2021 nearly over 90%.
- Investors shouldn’t confuse WISH stocks with an opportunity to get into an e-commerce leader at an incredibly cheap price.
There are many reasons to invest in e-commerce retailers these days. Online shopping was already a force to be reckoned with when the Covid-19 pandemic hit in 2020. With stores temporarily closed and in-person shopping a potentially risky business, even those who avoid the internet have started to fill these shopping carts online. A recent study estimates that in 2020 and 2021, the pandemic added $219 billion to e-commerce sales in the United States. One of the big beneficiaries was ContextLogic (NASDAQ:TO WISH).
The popularity of its Wish website and mobile app saw WISH stock close at an all-time high of $30.07 on January 29, 2021. In theory, Wish, which focuses on selling cheap products, should to be a treasured investor right now. With so many economic storm clouds, a popular e-commerce site with a reputation for significantly lower prices than the competition should attract investors.
Instead, WISH stock fell in value. It makes appearances on lists of penny stocks to avoid. You might think WISH stocks are a buying opportunity. Don’t fall into this trap. Here’s why.
Wish built its business on selling dangerous and cheap products
ContextLogic launched Wish as an e-commerce platform in 2013. It evolved from an online wishlist (hence the name) to a way to actually buy the products you’ve been craving – to price defying all competition. With a slew of unnamed Chinese vendors, Wish quickly offered hundreds of millions of items, ranging from makeup to wireless headphones to infant car seats. All sold for a fraction of the price of popular brands, while often looking like them. Or even pretending to be the real deal.
This approach has helped Wish become the most downloaded shopping app in the world, and the third largest e-commerce marketplace in the United States.
So far, so good. Who wouldn’t want to participate in WISH stock when the company went public in late 2020? Especially with the pandemic boosting online shopping.
The problem is that Wish was basically built on a house of cards. The prices were too good to be true. All of these cheap imitations and counterfeits were not only creating a backlash from consumers, they were beginning to attract the attention of regulators. In an investigation by French regulators, 45% of toys ordered from Wish were considered dangerous, 95% of electronic devices sold on the platform did not meet European standards and 90% were considered downright dangerous. Jewelry? Investigators found that 62% of items ordered from Wish were unsafe.
This investigation – and ContextLogic’s inability to address the concerns in any meaningful way – led to Wish being removed from search engine results in France. This is a problem that could well spread to other countries.
A turnaround would require attracting legitimate sellers and buyers
With WISH stock plummeting, ContextLogic is working on a turnaround. Among the movements announced in February were cost-cutting measures, including layoffs and the reduction of its real estate rental costs. This should save the company $32-37 million per year. But this has no impact on the central problem of its suppliers and products.
In response to French repression, ContextLogic was cited in Fortune saying that it was “actively diversifying its merchant base by recruiting sellers in various geographies, including Europe, to expand product selection and further improve product quality.”
The problem is that sellers who produce safe products and well-known brands are not cheap. They are also already selling on Amazon (NASDAQ:AMZN) and other e-commerce sites. Wish caused a stir by selling counterfeits at very low prices. There is absolutely no way it will regain its former popularity by becoming another website selling what you can buy on Amazon, at the same price Amazon sells it. It is also impossible for the WISH stock to recover, given the limited options.
Should you buy WISH shares?
ContextLogic is expected to release its second quarter results any day. If the company has anything positive to report about its restructuring efforts, it’s possible that WISH stock will rally after that. It’s just as likely that it will drop more, but that’s beside the point.
With its entire business model and identity built around selling online cheaper than Amazon, I see no way to see ContextLogic transforming Wish and rebuilding it into a viable e-commerce platform.
This portfolio binder Stocks rated “F” have no place in a long-term growth portfolio. As I wrote a few weeks ago, ContextLogic can’t wish its problems away.
As of the date of publication, Louis Navellier had a long position in AMZN. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.