Since its initial public offering (IPO), ContextLogic (NASDAQ:WISH) staged one rally to peak at around $33, only to fall steadily. Selling pressure on WISH stock accelerated after the company posted quarterly earnings on May 12.

After it bottomed at $7.52, why did the stock rally a few weeks ago from $8 to over $14? What is fundamentally wrong with Wish and its fun shopping site?

WISH Stock Up Briefly on Momentum

Reddit’s r/WallStreetBets liked ContextLogic’s catchy stock ticker and its short float. The subgroup members could post countless memes that “wish” for easy trading gains. Yet catchy phrases may only drive stock buying for so long.

Trading volumes faded more recently.

The 12% short float is not that meaningful. Compared to Workhorse (NASDAQ:WKHS), which has a 34% short float or GameStop (NYSE:GME) with a 25% short float, WISH shares will need more than a short squeeze to rebound.

In the first quarter, ContextLogic posted a loss of 21 cents a share. Revenue rose an impressive 75% to $772 million, but adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) losses mounted. It lost $79 million.

The company burned through $354 million in cash for operations. For the second quarter, the company forecasted revenue in the range of $715 million to $730 million. Modestly higher user growth of 19% year-on-year, to 107 million, failed to impress markets. Shareholders are growing increasingly concerned with the sharp revenue growth failing to bring profits.

Opportunity

WISH stock could attract value investors that expect revenue growth to continue. Wish Express listings increased by 414% year-over-year while shipping related refunds fell by 43%. The site is still inferior to many e-commerce firms. For example, Aliexpress, owned by Alibaba (NYSE:BABA), has better prices, more product choices and better quality items.

Investors could buy BABA stock instead as shares trend lower. Conversely, optimistic readers may bet on ContextLogic capturing a bigger piece of the global e-commerce market. The total addressable market was $3.4 trillion in 2019. eMarketer expects this market to expand to $6.3 trillion by 2024. Sales from mobile channels will grow to 71% of e-commerce by 2024. So, WISH’s global mobile channel should thrive.

Risks

Wish’s platform has over 550,000 merchants seeking over 100 million monthly active users. The company must invest in improving the customer experience. It must also drive sales by enhancing the search functionality, matching customer interests to that offered by merchants and removing poor-quality merchants.

Those activities have costs that will weigh on near-term results. Wish said that ProductBoost, an advertising solution, is leveraging its AI (artificial intelligence) matching system to its knowledge graph. This tool is easy for merchants to use, increasing their return on investment. Furthermore, merchants get a suite of services. This includes data intelligence, logistics and tools for business operations.

Fair Value

According to Tipranks, five-star analysts set a price target in the range of $12 to $24. The average price target is around $18.60. Conversely, based on its future cash flow discounted to present value, simplywall.st has a nearly $36 price target on WISH shares.

Investors may not realize the lofty one-year price targets if selling pressure resumes. WISH is effectively a hyper-growth cloud-based enterprise. If the stock price of its peers falls due to valuation concerns, WISH shares will fall with it. Investors may consider eBay (NASDAQ:EBAY), an established e-commerce firm, instead. EBAY stock still trades at a discount based on its price-to-earnings multiples.

The market may also pivot away from e-commerce firms and back to traditional discount stores and brick-and-mortar retailers. Investors may bet that the post-Covid stock market favors the latter. Falling online shopping transactions would hurt ContextLogic’s prospects.

Your Takeaway

WISH shares look like a bargain when they are not. Technology investors have cheaper stocks to consider. They could buy Alibaba or eBay shares instead. The mega-cap firms offer more safety when uncertainties for e-commerce firms are worsening.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.