Jumia Stock Is a Star This Year and Will Shine Again in 2021

There aren’t too many hot stocks coming out of Nigeria, so Jumia (NYSE:JMIA) is quite the pleasant surprise. Year to date, Jumia stock is up 570% which is 2.5 times more than Shopify (NYSE:SHOP) and 7 times more than Amazon (NASDAQ:AMZN). It’s very impressive for a low-profile name like this to beat the biggest gorillas in the sector. It gains instant recognition in my book as a legitimate contender stock to trade into next year.

Jumia (JMIA) banner at the New York Stock Exchange
Source: Christopher Penler / Shutterstock.com

The equity markets this year are on fire, against all logic. On paper the indices should be struggling, but instead they won’t stop setting records.

As the old commercial says: “Why ask why,” so plug your nose and trade fast movers. And Jumia stock is one that won’t quit rallying. The breakout happened off $20, then was confirmed as it rose above $24 per share. The proper technical target from the first line suggested the target of $31. Here it is another $10 above that with no end in sight. It even rallied and almost set a new high on the reddest Monday in a long while.

Jumia Stock Is a Star So Far But Needs a Rest

Jumia (JMIA) Stock Chart Showing Potential Trigger
Source: Charts by TradingView

My point today is of caution, because this is not an obvious point of entry. However, this absolutely is not a call to short it. JMIA will be an excellent stock to trade next year. The pandemic made sure that the online shopping trend will accelerate even more. Shopping with a mouse is just too convenient.

Millions of people hadn’t done it before 2020 and they will do it even more next year.

Furthermore, as high as the stock is year to date, it’s been here before. It came out of the gate in 2019 like a canon, but then crashed 95% into the pandemic lows. Amazingly, as of yesterday’s highs it had rallied over 2,000% from those lows.

Usually when a stock rallies into a prior failure zone, the bulls rest. It will need some consolidation and maybe even a few dips to build a better base. Some investors book profits while others take the baton for the next leg up. There is also the group that bought it too late in April of 2019. They’ve waited 20 months to get back to even, so they will be fast to sell.

The Story Will Have a Happy Ending, So Stick with It

The company serves markets that are probably slightly behind the times on that front. This is to say that its ramp may be even steeper than in more westernized markets. It has competition but there is enough business to support them all. Jumia started local and has grown their circle, which makes them in touch with what their clients want. It reminds me of the earlier days of Amazon so the sky’s the limit for this team.

The reason for my apprehension is not a knock against the bullish thesis for Jumia. All signs point to long-term success and a bright future. I just don’t like chasing runaway stocks this late into an extension. I understand the idea of momentum trading — buy high and sell higher. But I need a longer runway ahead without overhead supply of potential sellers. I know for a fact that the trigger occurred almost $20 back. New buyers risk of being Johnny-come-latelies.

Having the resistance cluster at its prior highs is not a death sentence to the rally. The next trigger will be when the buyers can prove they can overcome the prior failure at $50.

It is hard for a lot of traders to resist the potential $7 of upside but I’d rather wait. FOMO is a powerful motivator but also the reason for a lot of heartache as well.

How to Trade It From Here

The proper way to handle the JMIA stock from here is simple. Staunch investors can buy it but only if they truly don’t care about the next few years. Those of us who prefer picking somewhat reasonable entries should buy the dip into closer to $30. I am a fan of having short-term positive outcomes rather than blindly buying a popular stock. Sometimes I miss out on rallies, but so be it.

If the dips don’t come and Jumia stock breaks out above $45 it could catch another wild tailwind. Maybe the Wall Street Santa Claus rally can catapult it past its resistance at $50. Investing in winning stocks comes down to individual preferences and situations. First define the trade if investment or trade then choose the appropriate course of action. There are no trades that fit all investors the same way.

So far we haven’t discussed fundamentals, and they are great. JMIA still loses money but management tripled its gross profits since 2017. Its price-to-sales ratio is 20 so it is not outrageously expensive. From that perspective it’s four times more expensive than AMZN but three times less than SHOP. Valuation is not a risk at this time save not for the unbelievable price action.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Nicolas Chahine is the managing director of SellSpreads.com.

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/jumia-stock-is-a-star-this-year-and-will-shine-again-in-2021/.

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