The explosion of e-commerce stocks has been one of the biggest stories of the year. Thanks to the novel coronavirus, folks have moved their shopping online, creating a ton of winners with every click. It’s not just in well-known U.S. stocks either; e-commerce shares have been flying in Latin America, China, and Southeast Asia as well. So, is Nigeria’s Jumia Technologies (NYSE:JMIA) stock ready to join the party?
Jumia, you may recall, has had a bit of a bumpy ride since its initial public offering (IPO). JMIA stock first traded in 2019 at around $25 a share. The stock quickly surged to $40. But then questions about the business model and management emerged and things went sour in a hurry. By the end of 2019, JMIA stock traded for just $6 per share.
This year’s also been a volatile one for Jumia as well. Contrary to what you might think, JMIA stock actually tanked initially during the coronavirus, falling to a low of $2.15. It wasn’t until summer that traders woke up to the e-commerce potential, sending the stock up tenfold. After soft earnings, however, the shares lost two-thirds of their value. But since October, JMIA stock has doubled again. So what are we to make of this roller coaster?
JMIA Stock’s Biggest Critic Turns Positive
If you follow controversial stocks, you likely know the name Citron Research. The independent firm is well-known for its 20 years of blunt and abrasive commentary about stocks, usually with a distinctly negative outlook. It’s quite common for stocks that Citron talks about to plunge 10% or even 20% in the days following a blistering report or series of tweets.
The African e-commerce firm found itself in Citron’s sights in May 2019. At the time, the short-seller suggested that Jumia was an out-and-out scheme set to defraud U.S. investors, arguing that shares were worth absolutely nothing.
While Citron rightfully pointed out some concerning facts about Jumia’s questionable operations and also an unproven business model, things have changed.
In fact, Citron is now bullish on Jumia for several reasons. One, Jumia has greatly improved its profitability metrics by pivoting to faster-selling items and paring its advertising spend. For another, Jumia has shifted its focus toward being a platform company for deliveries, like a GrubHub (NYSE:GRUB) instead of just trying to sell standard retail merchandise.
Not All Good News
Earlier this summer, Jumia stock plunged in the wake of its Q2 results. While the company was seemingly well-positioned for the pandemic, it failed to translate that possibility into tangible results. However, investors forgave the company and ran the stock up again ahead of Q3 results.
Sadly, however, we got the same outcome. Once again, Jumia came up woefully short of expectations. Revenues, for example, were a full 10% shy of what analysts had modeled. It’s a pandemic right now, there are logistics issues, so you can give companies a pass for small misses. Coming up 10% short on revenues during the biggest demand boost in years, however, is harder to overlook. Incredibly, the company’s gross merchandise value (GMV) plummeted 28% for Q3 as well.
Let’s give the company credit where it is due in that some of this slowdown was intentional. Jumia refocused its marketing spending and cut its overall outlays there dramatically. Additionally, it switched its product mix, and thus enjoyed sharply higher gross margins, even as it sold fewer goods.
Add this all together and Jumia showed its smallest operating losses in years. So, as part of a longer-term transformation, Jumia is making the right steps. Still, the company is not showing any of the sort of explosive growth that the other e-commerce companies are getting this year.
JMIA Stock Verdict
There’s an old Wall Street adage that goes: “Price is what you pay, value is what you get.” Since September, JMIA stock has more than doubled. While it was easy to make a case for Jumia as a speculative buy at that time, the risk and reward is more in balance here. That’s because the stock price has increased even as Jumia’s fundamental value hasn’t really moved much.
That’s not to say that JMIA stock is necessarily a bad investment today … far from it, in fact. However, when shares are up from $8 to $17 — and then to $24 in yesterday’s 19.2% blast — in a short period of time, a little more caution is required.
That said, if you agree with Citron’s change in perspective, there could still be plenty of upside. In its latest report on Jumia, Citron says that JMIA stock could ultimately be heading to $100 a share, assuming that Nigerians eventually adopt e-commerce with the same enthusiasm that other emerging market consumers already have. Needless to say, that’d be quite a pay day for investors getting in at these levels.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.