How should investors understand ContextLogic (NASDAQ:WISH) stock currently? After all, it doesn’t look like its price is currently being affected much by short interest. That short interest has fallen quickly and sat at 5.38% on July 1. Those levels should hardly have any discernible effect on share prices at all. 

Perhaps then investors should consider WISH shares as an e-commerce play that is only temporarily below its December IPO. The narrative there would be to ignore that WISH stock is below IPO prices and to focus on the upside. 

More likely though, the smart play is to assume that share prices have a long way to go before reaching IPO levels. Let’s start there.

IPO Went Well…

Shareholders who got in at the IPO floor saw prices appreciate 55% through the first 10 weeks. But it’s been almost all downhill thereafter. A brief spike in short interest in early June was the only catalyst bringing price upward in the last five months. 

That isn’t a strong narrative by any means. Basically, it looked like the IPO was overpriced and that WISH was headed for the single digits. Right now, my thesis is that the spike in short interest, which has dissipated, is sending more investors diving into ContextLogic’s fundamentals. 

They’re judging whether now is an opportune time to get in cheap. Because although WISH has plenty of issues, it also has plenty of room for optimism. 

That’s keeping prices steady because they’re not willing to give up just yet. Long story short, share prices are caught in a tug-of-war now. But they should slowly go back down again. That’s because the fundamentals are still mostly unencouraging. 

To understand why we only have to look at the company’s first quarter results presentation.

Revenues and Losses

Revenues hit $772 million in Q1 for ContextLogic. Compare those revenues to the quarter a year earlier and things look good. In Q1 of 2020 the company posted $440 million in revenues, meaning they grew by 75% from the previous year. 

In Q1 of 2020 ContextLogic suffered a net loss of $66 million on those $440 million of revenues. Since revenues increased from $440 million to $772 million Q1 2021 it would be logical to expect that net loss might have become a positive number. 

Unfortunately, that wasn’t the case and the company’s net loss swelled to $128 million from $66 million even though revenues were up 75%. 

Not only are its results unencouraging, but they’re also very volatile. The company has been all over the place in terms of revenues and losses for the past several quarters. As a result, it is very difficult to make an educated guess about where it’s going. 

Opportunity Is There

WISH certainly has a massive opportunity in front of it. There’s no doubt about that. It hopes to bring an affordable and entertaining mobile shopping experience to customers worldwide. 

In 2019 63% of the $3.4 trillion total addressable e-commerce market was mobile driven. By 2024 the pie will have grown to $6.3 trillion and 71% of traffic will be mobile based. So, there’s no doubting the overall opportunity. However, there are many reasons to doubt that WISH is going to emerge as a champion. 

Further, the company’s Q2 projections aren’t very attractive. It predicts between $715 and $730 million in revenues and a $55-60 million EBITDA loss. 

Those revenues would be lower than revenues in each of the past two quarters. And in Q2 of 2020 the company posted a positive EBITDA of $16 million. Investors won’t be happy when that becomes a negative $55-60 million in Q2 of 2021. 

Takeaway

WISH stock is likely to be trending down soon. As more investors drawn in by recent short interest driven headlines dig through the numbers, WISH should stagnate. Someday it may become a worthwhile e-commerce investment, but that day isn’t today. 

On the date of publication, Alex Sirois 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.