I have been deeply skeptical of ContextLogic (NASDAQ:WISH) stock, as you might have guessed if you read my last article about WISH stock on June 18.

The title of that article, “Wish Stock Is Cheap, But Not a Bargain,” displayed my belief that WISH stock was not going to rise anytime soon.

In fact, I should have been even more skeptical. Since then, WISH stock has fallen from $11.40 to $3.11 per share as of Dec. 16. What a disaster. Everyone in this stock has lost money.

So it shouldn’t have surprised anyone when management told WISH stock investors on Nov. 10 that the CEO was going to be replaced.

For some reason, he was kept on the job until a replacement became available. Personally, I would have gotten rid of him well before this.

What Is Going On At ContextLogic

The reason is that this company is not only unprofitable but burning through cash like wildfire. The company calls itself one of the world’s largest e-commerce sites, and that might well be true. But from what I can see, it’s also one of the world’s most unprofitable e-commerce firms.

Let’s take a look at the cold hard reality, and why the CEO was fired. I like to pass over all the nonsense that most companies put out about their fast growth rates and go straight to the cash flow statements.

Page 8 of the shareholder letter has the three and nine-month cash flow statements ending Sept. 30. It shows that operating cash flow was negative $902 million over the first 9 months of 2021. In addition, for the last three months of that period, ContextLogic burnt through $344 million.

Here is why that is so bad. If this cash burn rate keeps up, the company will eat through all of its cash. The $344 million Q3 cash burn works out to $1.376 billion. The problem is, ContextLogic has just $1.072 billion in cash and $143 million in marketable securities. Total cash and securities are only $1.215 billion.

The market knows the company is quickly nearing a point where it is either going to have to borrow debt, raise more equity or both. Whatever the case, it won’t be good for shareholders or company value. The bottom line is that the company needs to get profitable from a cash flow standpoint.

And things are actually worse than that. Because of the company’s negative cash flow margins, the higher it grows sales, the higher its losses will grow. This is essentially a death spiral for the company.

Where This Situation Leaves WISH Stock

Since WISH stock has fallen so much one might assume that this means that ContextLogic has already discounted the prospect of a dilutive share issue.

But I don’t think it has. First of all, the company has to hire a new CEO, and he will want to put his stamp on how to turn the company around. In fact, it may not even be very easy for the board to find a turnaround artist.

The first thing that new CEO is going to do is slash costs. That is going to deepen losses. Then he is going to raise cash at a huge discount, maybe even up to 50% from today’s price. The only way institutional investors will put money in this stock is if “their” CEO candidate comes in with a slash and burn strategy.

All of this means that WISH stock is going to crater even further. I put it at 50/50 odds that the stock falls another 50%. At that point, we can talk about whether WISH stock looks like a bargain. It will all depend on how drastic the changes that the new CEO will put into place to cut the company’s cash burn situation. And if he doesn’t, WISH stock will crater even further.

On the date of publication, Mark Hake did not hold (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.

Mark Hake writes about personal finance at mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.