Look around the world and it’s easy to find international companies that are often compared to American firms. That’s true of Jumia (NYSE:JMIA), but investors shouldn’t expect this to be another version of Amazon (NASADQ:AMZN) or China’s Alibaba (NYSE:BABA). That doesn’t mean JMIA stock lacks for potential.
As is the case with so many names with e-commerce and online retail exposure, JMIA stock is being bid higher this year. It’s up almost 40% year-to-date and that’s with a nearly 55% tumble for the month ending Sept. 1.
Obviously, that’s more than a pullback, but this retrenchment could be the opportunity investors have been waiting for with the so-called “Amazon of Africa.” That is if they can keep things in perspective with Jumia and in this case “perspective” means not comparing the company to Amazon or Shopify (NYSE:SHOP) despite some obvious similarities.
What to Make of JMIA Stock
Allow me a brief personal indulgence, but one I’m going to tie to Jumia. Two things I’ve learned in over a decade analyzing and covering emerging markets through the lens of exchange traded funds (ETFs): investors will express interest in the developing economies consumer thesis, but Africa is a vexing region.
Although it’s based in Germany, Jumia provides internet retail platforms and logistics services in Africa, hence the “Amazon of Africa” comparisons. Statistically speaking, Jumia could be a winner for investors that, you guessed it, keep things in perspective. There are 54 countries on the continent, many of which have small middle classes and low internet penetration, but figures in both categories are on the rise.
That’s meaningful for Jumia because as is the case in many other developing regions, Africa lacks the brick-and-mortar retail infrastructure that Western consumers are accustomed to. Said another way, it’s unlikely you’ll find a Costco (NASDAQ:COST) or Walmart (NYSE:WMT) on your next visit to Eritrea.
That’s not a knock on that country or the continent. Rather, it underscores opportunity with internet retailers addressing African markets.
“Internet adoption is expanding rapidly within emerging markets at the same time that domestic consumption and retail sales are steadily increasing and frequently taking place online,” according to KraneShares.
Africa has another built-in advantage that could hasten Jumia’s rebound for long-term: ample population. Led by Nigeria, the continent is home to 12 of the 40 most populous countries in the world. As Alibaba and other Chinese online retailers show investors, access to large population bases is material for e-commerce companies.
Why Perspective Matters
There I am again, belaboring perspective, but it’s relevant with Jumia. There’s no denying there’s a growth opportunity here. In 2005, internet penetration in Africa was just over 2%. Last year, it approached 25%.
Here’s where the perspective comes into play. Jumia has a market capitalization of just over $708 million. That’s small-cap territory and it that mark means it would take about 70 Jumias to make one Amazon. Size talk is also relevant when discussing Africa’s e-commerce market.
E-commerce sales there checked in at $16.5 billion in 2017 and are forecast to jump to $29 billion in 2022. That’s a nice rate of compound annual growth, but $29 billion is also just barely more than quadruple the sales Amazon’s 2019 Prime Day.
Investors need to reconcile that and that Jumia is unlikely to ever sport a $3,000-plus price tag like Amazon. However, those that evaluate Jumia and the broader African online retail opportunity within the proper context can realize gains, particularly with JMIA stock currently residing below $10, indicating risk/reward in this name is tilting toward the “reward.”
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.