Is ContextLogic’s Stock Overvalued or Undervalued?

(Arek Socha/Pixabay)

ContextLogic Inc. shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 80.3 percent.

ContextLogic’s stock has had a wild ride in 2021, but investors may be wondering whether there’s any value to be found in ContextLogic shares after the sell-off.

Earnings

A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 30.5, nearly double its long-term average of 15.9. ContextLogic doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, ContextLogic reported a $64 million net loss.

Growth

Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.3. Unfortunately, analysts are not expecting ContextLogic to turn a profit over the next four quarters.

The current consensus earnings per share estimate for ContextLogic for 2022 is a per-share loss of 30 cents. ContextLogic’s consumer discretionary sector peers are currently averaging a 31 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren’t everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1.0. Once again, without positive earnings, ContextLogic doesn’t have a positive PEG ratio to use as a valuation gauge.

The price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.26, well above its long-term average of 1.63. ContextLogic’s PS ratio is 0.86, nearly 75 percent below the S&P 500 average. ContextLogic’s PS ratio is also down roughly 83.2 percent over the past year, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see value in ContextLogic stock over the next 12 months. The average analyst price target among the seven analysts covering ContextLogic is $5, suggesting about 43.3  percent upside from current levels.

Verdict

At today’s price, ContextLogic stock appears to be undervalued based on a sampling of common fundamental valuation metrics.

By Wayne Duggan

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