What a year it has been for investors in the stock of Germany-headquartered, Africa-focused online marketplace Jumia Technologies (NYSE:JMIA). So far this year, Jumia stock has returned over 500% and in late December it hit a record-high price of $49.
Put another way, the proverbial $1,000 invested about a year ago in Jumia’s shares would now be worth around $5,000. Their returns are similar to those of Tesla (NASDAQ:TSLA), which is up around 650% in 2020.
In this column, I’ll examine what could be next for Jumia stock. Those who do not yet own the name could consider investing in it for the long-term if its price declines to $35 -$40.
Jumia’s Strong Presence in Africa
Jumia currently operates in about 12 African countries with a total of over 600 million users. Many investors think that Jumia’s current status is similar to that of Amazon (NASDAQ:AMZN) in its early days, and they call Jumia the “Amazon of Africa.”
Two researchers based in Chinese universities recently wrote: “Jumia is the leading Internet platform in Africa… Jumia Services provides a complete ecommerce fulfillment platform through a network of our own-managed and third party warehousing, order processing, and logistics service providers.”
According to three other researchers working out of the Wuhan University of Technology, “JUMIA cart is one of the most popular {e-commerce websites} in Africa. For thousands of Africans in general, the carriage and the rest of the logo of the company are synonymous with bargains on the internet… JUMIA appropriated cultural differences to provide adequate service to its customers. Cash on delivery payment is at the top of these adaptations.”
Investors have been noticing the high volume of internet traffic that Jumia attracts in Africa, as “The Jumia and Konga E-Commerce platforms … are easily the biggest and top ranking E-Commerce sites, as well as two of the top 10 most visited sites in Nigeria and Africa, as seen on Alexa rankings,” according to a research paper.
Evaluating Jumia’s Q3 Earnings
Jumia released its third-quarter results in early November. Its revenue dropped 18% year-over-year to EUR33.7 million, and its Q3 loss came in at EUR32.9 million. At the end of Q3, Jumia’s cash and equivalents had dropped 35% YOY to 147.1 million euros.
Co-Chief Executive Officers Jeremy Hodara and Sacha Poignonnec said, “We are making significant progress on our path to profitability with Adjusted EBITDA loss in the third quarter of 2020 decreasing by 50% year-over-year.”
Investors are indeed hopeful that the company is en route to profitability. Prior to the release of its Q3 results, JMIA stock was around $15. On Dec. 24, it closed at $43.62. That is a big move in less than two months. Therefore, it may be time to be cautious about Jumia’s shares..
The stock’s price-sales and price-book ratios are 19.7 and 40.5, respectively. So the stock’s valuation is quite high, even for a growth company like Jumia.
E-commerce in Africa could very well expand meaningfully. However, it is not going to do so overnight. Thus, it is important to view Jumia stock from a long-term perspective. It’s true that its market capitalization is currently shy of $4 billion, which means the shares could still rally considerably.
Yet investors who own the stock need to be patient. It is also possible, however, that the company will get acquired by a larger firm, a move that would reward investors handsomely. Given the growing interest by Chinese investors in continental Africa, a China-based company like Alibaba (NYSE:BABA) or JD.Com (NASDAQ:JD) could easily seek to buy Jumia.
The Bottom Line on Jumia Stock
Given the recent run-up in its share price, Jumia could come under pressure as some investors decide to cash in their paper profits. In the coming weeks, a move below is $40 is likely.
If you do not currently own Jumia stock, you may want to wait on the sidelines for now. A potential decline would improve the shares’ risk-reward ratio.
Those who already own the name may consider using a covered call strategy with approximately a one-month time horizon. Such a covered call position could offer you some downside protection, while also giving you the ability to profit from a potential rebound in Jumia stock.
Alternatively, you could consider buying into an exchange-traded fund (ETF) that holds Jumia stock. Among the ETFs in that category are SPDR S&P International Small Cap ETF (NYSEARCA:GWX), the Amplify International Online Retail ETF (NYSEARCA:XBUY) and the Amplify Online Retail ETF (NASDAQ:IBUY).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.
