After trading poorly in the past few months, ContextLogic stock (WISH) - Get ContextLogic, Inc. Class A Report found its way higher again. On October 20 alone, shares were up 14%. Meanwhile, the ticker saw overwhelming volume of comments on Reddit, which may help to justify bullish market action.
As we mentioned in previous articles, and while the stock remains near all-time lows, momentum investors might still not be too late for the party.
Exposure may have done the trick
A likely culprit behind WISH’s brief rally was the stock’s popularity online pushing demand for shares higher. The ticker received 150% more mentions and a whopping 35,000 upvotes – understanding that correlation between comments and upticks in share price does not necessarily indicate causation. See below the top trending stocks on Reddit on October 21.
Another popularity tracker (see below) suggests that, in the last three months, WISH's popularity remained consistently high. However, share price had not necessarily been moving in lockstep with exposure on the discussion boards until recently. Still, it is not at all surprising that a jolt in stock price could soon follow.
The correlation between online popularity and WISH’s recent performance is consistent with the SEC’s recently released report on GameStop’s trading frenzy. The rallies seen earlier in 2021 have been primarily attributed to an increase in engagement by retail investors, enabled by platforms like Reddit. The same report also questioned the hypothesis that short covering had much to do with the massive increases in share price.
This week’s bullish attack may have also been motivated by Wish stock being so close to its all-time lows. Growth in the e-commerce space has been pressured by the “beginning of the end” of the pandemic and stay-at-home tailwinds. Also, several Wall Street experts have downgraded WISH following Q2 results, undermining positive sentiment.
The above seems to have created a bearish wave. WISH has elevated short interest, at almost 25% of the float. Such high ratio can put short sellers in a vulnerable position: an increase in trading volume coupled with overbidding can force some to close their positions, kickstarting a snowball effect.
Experts see upside
Lastly, Wall Street currently assigns a consensus price target of $9.06 to Wish stock, signaling impressive 55% upside potential from the current sub-$6 levels. Despite an average neutral rating, even the more skeptical analysts still see gains ahead.
Credit Suisse’s Stephen Ju reduced his price target from $24 to $19. He adjusted projections lower after ContexLogic missed Q2 revenue and adjusted EBITDA estimates due to lower customer retention and declining usage rates. However, the analyst still sees massive upside potential of nearly 200% ahead.
Citigroup’s Nicholas Jones is not as bullish. He has a neutral rating on the stock but forecasts $7.50 on the horizon, for 23% upside potential. Q2 earnings were cited as the key reason for a price target reduction. Mr. Jones also attributed poor stock performance to the company’s difficulty in sustaining growth, especially due to higher-than-expected user churn and ad rates.
On the bearish side, JPMorgan and Oppenheimer have a sell rating on the stock and $4 to $5 share price target. According to the former, decline in user activity due to the reopening of the economy, alongside Wish’s retention and rising ad costs, are the main concerns.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)