At just under $2.50 per share, there’s no question that ContextLogic (NASDAQ:WISH) is a low-priced stock. But is WISH stock a cheap stock, in terms of valuation? That’s another question entirely.

Sure, with a market capitalization of $1.4 billion, against $2.59 billion of trailing 12-month sales, its price-sales (P/S) ratio of around 0.6 times is in line with the P/S ratios of comparable small e-commerce plays. For instance, Overstock.com (NASDAQ:OSTK) trades at the same multiple.

That said, it’s a bit of a stretch to compare ContextLogic to Overstock.com. Sure, Overstock is no Amazon (NASDAQ:AMZN). Yet it’s profitable, and analysts, on average, projects that its sales will increase by high-single-digit-percentage levels this year. ContextLogic, which operates the Wish.com platform, is definitely not in the same situation.

ContextLogic’s sales have dropped sharply since the pandemic started easing. As the “stay-at-home” economy ended after the lockdowns were terminated, the company’s ad-focused business model was no longer viable. Its sales  are expected to continue to decline, as it struggles to revamp its strategy in order to adapt to the post-pandemic changes in the e-commerce industry.

Worse yet, ContextLogic is losing money, and that trend is expected to continue in 2022. As a result, expect the shares to keep dropping before they (possibly) start to bounce back.

Investors Have Lost Hope in a Comeback by WISH Stock

Admittedly, ContextLogic’s move from hot stock  to penny stock isn’t completely its fault. The pullback of growth stocks and meme stocks, caused by the Federal Reserve’s increased hawkishness, has certainly added fuel to the fire.

Still, WISH stock has tumbled primarily because investors have lost hope in its ability to turn itself around. That is not surprising, since the company’s performance is set to get worse before it gets better. That’s the last thing any investor wants to hear.

As ContextLogic itself conceded when it last reported its quarterly results, its Q4 sales (which included the holiday shopping season) are expected to be lower than its Q3 revenue. We won’t know the full extent of the drop until March, when it reports its Q4 earnings.

But even if ContextLogic’s Q4 sales come in at $313 million, in-line with analysts’ mean outlook, its revenue will have dropped around 15% versus Q3 and more than 60% year-over-year.

Another Retreat May Be in Store

After WISH stock tumbled more than 90% and with sentiment towards it even among meme traders at a low point, it may seem like WISH stock has bottomed. Unfortunately, the shares can fall further, even though they are trading at a low price.

Making such a scenario more likely is the fact that there’s no guarantee that the changes to its business strategy will produce better results. As you may already know, ContextLogic’s game plan is to move away from its past business model, which relied on heavy ad spending to attract one-time purchases. Instead, it’s trying to improve the user experience of its platform and upgrade the quality of its merchandise, in order to attract more loyal customers.

That change likely won’t enable its sales to return to their 2020 levels. Yet the strategy could enable it to become profitable, potentially causing the shares to rally. So far, though, there’s been no indication that  this strategy is working. 

But the firm  said last year that it would not be until at least mid-2022 that its new  strategy could start to pay off,.

However, what if mid-2022 arrives, and its sales are continuing to drop each quarter, compared with the previous quarter? In that scenario, ContextLogic will have a tough time maintaining ts current valuation.

It’s Still Too Early to Say If ContextLogic Has Bottomed

So, how much further could ContextLogic’s shares drop before the dust has truly settled? They may undergo another, moderate drop as the market adjusts the shares’ valuation to account for the company’s shrinking sales.

That is, the stock may maintain its current price-sales ratio of 0.6 times while moving lower as the company’s sales drop this year. If that happens, the shares’ market capitalization could fall to around $1.04 billion, resulting in a price of $1.62 per share.

Although ContextLogic is deep in penny-stock territory, it could easily experience another double-digit percentage decline,. Consequently, it’s still best to avoid the shares at this point.

On the date of publication, Thomas Niel 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.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.