Those two might be the biggest winners, but there are others that have gotten some help from retail investors, including Bed Bath and Beyond, BlackBerry, Koss, and Clover Health.
These “meme” stocks usually are based on one thing: They are weak companies. Nearly all of them are growing very slowly or losing money. They are mainly consumer companies that have faded from their highs.
However, one meme stock that has taken off is a very different type of company. The recent IPO ContextLogic (WISH) — which is also called Wish, the e-commerce system — has increased by 70% since the beginning of June on very high volume.
Wish is growing quickly and commands a big valuation. Is the WallStreetBets crowd getting into something good here? Let’s look at what the company has to offer.
A Wish for big profits
Wish was started in 2010 and quickly grew. It reported a 34% revenue boost in 2020 to $2.5 billion. The company wants to distinguish itself by democratizing commerce with a personalized platform.
Wish’s business model offers a whimsical shopping experience with deeply discounted products, among other more normally priced items. And it copies social platforms like Pinduoduo by attempting to make shopping fun, giving sweepstakes and prizes for visiting and being loyal to the platform.
ContextLogic does not have the usual markers of a meme stock, but it does appear somewhat like the stocks on WallStreetBets.
Wish has gotten attention from some short-sellers (16% of its float was sold short at the end of May), and its not so good performance in the months after its IPO possibly got attention from the bargain-finding investors at WallStreetBets.
Compared to other growth stocks, Wish is very reasonably valued with a price-to-sales ratio near 3, about level with other e-commerce giants like Wayfair or even Amazon.
But the big question is, will they be able to make a profit? Its current model requires greater spending on giveaways for new customers, and it might be difficult to grow this expenses once customers expect those type of rewards.
Wish’s model seems unproven, and its claim that data science is crucial to its competitive advantage doesn’t seem accurate as the company goes head to head with Amazon, which is a master of data science.
For investors seeking out meme stocks, Wish is among the best. But given its problems with making a profit and differentiating itself, I would say this stock is best watched from the sidelines.
Author: Blake Ambrose
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