Jumia (NYSE:JMIA) stock is trading at record levels. The simple reason for this seems to be a bullish report in which JMIA stock is being called a generational buy. That same report (which to be objective came from a notorious short seller) gave the African e-commerce company a $100 price target. Those are bullish words. But are they accurate?
In my opinion, they could very well be… in time. But I don’t think it warrants a stock that’s trading at nearly $50 today. The size of the continent alone demonstrates the potential for Jumia. The e-commerce market is largely untapped in Africa. However that’s likely to change. A 2013 McKinsey study forecasted that e-commerce in Africa may present a $75 billion opportunity in five years.
That’s an attention-getting number. And according to the United Nations Conference on Trade and Development (UNCTAD), there are a growing number of online shoppers on the continent. In fact, UNCTAD reports a 21% annual growth since 2014. That’s higher than the global growth rate of 12% in that same time period.
However the continent is starting from a deficit. And it will take time before the potential will turn into promise. And that’s not what the stock is reflecting at the moment.
Bridging the Digital Divide
The Covid-19 pandemic is said to have created a fundamental shift in the American economy. E-commerce has gone from a convenience to a necessity. In a quantum shift, millions of Americans became engaged in the e-commerce culture. And many others began to use e-commerce for items that they may have never expected to buy before, such as groceries.
However, the pandemic is also bringing to light the digital divide that still exists in the United States. According to the Pew Research Center 44% of adults in households with incomes below $30,000 don’t have broadband internet.
That’s just one statistic, the Federal Communications Commission says over 21 million people lack broadband, with approximately 27% of that number coming in rural America. And Microsoft (NASDAQ:MSFT) has produced research to suggest that over 160 million Americans may lack broadband internet access.
I mention these statistics for only one reason. The United States is a developed country. Africa is not a developed continent. Africa needs to build out the infrastructure for e-commerce. Many of the major African economies lack the needed essentials for online retail including internet access, digital payment infrastructure and third-party delivery logistics.
And keep in mind, although Amazon (NASDAQ:AMZN) is not the global e-commerce leviathan like it is in the United States, the company is taking a pass on Africa, at least for now. The company cites the expense and challenges of trying to establish the infrastructure on the continent.
The heavy lift on the continent was confirmed by Torbjörn Fredriksson the head of e-commerce and digital economy for UNCTAD says, “The shift to online platforms and services is far from automatic in Africa.”
JMIA Stock Has to Grow Into Its Current Valuation
Bulls can continue to be bullish long after it makes sense. And that may be driving the growth in JMIA stock. Jumia is trading at an all-time high. After all, if e-commerce is good, then e-commerce in a developing continent is even better.
However that narrative seems suspect. There are good reasons why Africa is a developing continent. And those same reasons are reasons that are giving Amazon pause before jumping in.
Are those reasons enough to suggest you should stay away from Jumia stock? Only you can be the judge of that. My belief is that the real growth is not a sure thing, and it’s years from materializing if it is to happen at all.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
