E-commerce. It’s red hot in 2020 and promises to continue. But after a big-time price cut on the shares, should investors be bargain-hunting in online retailer Jumia Technologies (NYSE:JMIA)?
Jumia is a German-based e-commerce platform which operates exclusively in Africa. Much like Amazon (NASDAQ:AMZN), JMIA connects sellers with consumers and performs all the background dirty work from transactions, payments, and logistics services to ensure a seamless experience for purchases. And from smartphones to home goods, food delivery, flight and hotel booking and everything in-between, Jumia is open for business.
Let’s see what’s happening off and on the price chart of JMIA stock, then offer a risk-adjusted determination to browse, purchase or steer that shopping cart in the other direction.
Getting Grip on Africa
For consumers and more than a few businesses, if the coronavirus has taught Americans — and much of the rest of the world — one thing, it’s that we’re even more reliant on Amazon in today’s socially distanced reality. From streaming our favorite entertainment to providing critical cloud-based services, the 800 lb. gorilla has turned into a $1.52 trillion-dollar monster.
Hold on a second, aren’t you forgetting something? Of course, it’s the increased tonnage of essential and nonessential goods we find ourselves clicking on to purchase within Amazon’s e-commerce platform that’s the single biggest reason most of us can’t live without the tech behemoth. Yet some of us do. In fact, many people are and that brings us to shares of JMIA.
Given Amazon’s e-commerce success and a planet where the world’s largest continent hasn’t already been swallowed up by the tech giant or China’s Alibaba (NYSE:BABA), Jumia’s concentrated business model sounds like it’s in the right place, at the right time. Feasibly, JMIA could be the next Amazon, right? Maybe. And more than a few people have pitched the idea.
Some of the offers spied promoting JMIA vis-à-vis a quick Google search look like back-alley solicitations. But many aren’t. Even CNBC has been in on the promotion. And for good reason. The fact is Jumia isn’t some two-bit, fly-by-night operation. Moreover, the company has sunk its claws into the African market as the continent’s biggest e-commerce player. Still, continued losses like Amazon’s early days and underwhelming quarterly results despite Covid-19’s tailwind are concerning.
JMIA Stock Weekly Price Chart
Click to EnlargeSource: Charts by TradingView
Reasonably, August’s spotty earnings report solidified the idea that foreign, small-cap investments synonymous with larger company-specific risks are comfortably making a home in JMIA stock. Yet as the weekly price chart of Jumia stock and its volatile price swings also supports, shopping for value rather than buying hype is possible right now.
Technically, a post-earnings mass exodus out of shares has worked its way into a deeper challenge of the stock’s 76% retracement level and trendline support tied to Jumia’s Covid-19 March bottom. If only AMZN stock would offer such a terrific-looking opportunity, right?
Without question JMIA’s price action sets up an attractive spot for bargain-hunting investors. Still, future performance guarantees are another story entirely. In fact and if technical support fails, today’s alluring discount could be more than many investors bargained for. Lows near $2.50 or an even more devastating bear market cycle could be in the cards. And obvious relative weakness since August may be an indication the e-commerce outfit is saddled with more baggage than competitive advantages.
Bottom line, and for investors still interested in buying JMIA, I’d offer the suggestion to wait for modest demand in the stock before pulling the trigger. Patiently monitoring shares for a bullish stochastics crossover and candlestick confirmation for bottoming before a purchase won’t get investors in at the absolute low. Smartly though, this type strategy should help avoid buying merchandise that could be bound for the garbage bin.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
The information offered is based upon Chris Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
