If there ever were such a thing, in no certain terms is Jumia (NYSE:JMIA) the perfect investment. JMIA stock’s heavy population of bears stresses its apparent flaws. Still, price performance hasn’t been one of its issues. And thankfully, entering 2021, the opportunities for Jumia to grow successfully are even stronger.
Let me explain.
E-commerce. If you’re an American, it’s a market heavily associated with Amazon (NASDAQ:AMZN). And rightfully so. The $1.59 trillion behemoth accounted for over 50% of all retail sales in 2019. And with the novel coronavirus pandemic acting as a huge tailwind this year, sales have been going through the roof for the outfit.
Globally though, Amazon isn’t the same 800-lbs gorilla that most Americans see as an essential service.
Competition from Alibaba (NYSE:BABA), MercadoLibre (NASDAQ:MELI), Sea Limited (NYSE:SE) and JD.com (NASDAQ:JD) have helped limit Amazon’s overseas e-commerce dominance to roughly 14%. That’s still big of course. But those companies are flexing their own large-cap muscle in Asian and South American markets at the expense of Amazon. And in Africa, Jumia is using the same playbook as it looks to go from being the early leader and turn into a bonafide controlling force. So, what is Jumia?
Jumia is a Nigeria-based e-commerce and mobile payments platform that operates exclusively in Africa. The market is huge, and penetration is just getting underway. Moreover, Jumia’s early mover advantage in 11 countries responsible for generating upwards of 70% of Africa’s GDP makes the company the name to beat, despite some investors seeing things differently.
To be fair to Jumia’s resident bear population, which measures roughly 18% of the stock float, JMIA stock is still small potatoes. At a valuation of just under $3 billion, the company is a modest mid-cap. That’s no Amazon and its size could have some investors betting against its chances. Jumia’s sales or lack thereof might give bears a reason to salivate too.
Not only have revenues shrunk year-over-year by 17%, but they’re also puny at roughly 6% of Jumia’s stock price. And the company’s 6.7 million active customers? Obviously that’s not going to keep it at the front of the pack. A highly concentrated stake in mobile phones is another potential knock. But with more 110,000 active third party sellers and 40 million products on its platform, let’s not forget Amazon began as a singular seller of books.
Superficially damning, in light of a coronavirus-driven e-commerce bonanza for its peers, there does seem to be that question of, if not now, when? But that too misses the bigger picture for Jumia.
In fairness and no fault of its own, Jumia wasn’t in the same starting blocks as Amazon or for that matter Alibaba, MercadoLibre and other e-commerce giants when Covid-19 hit. Furthermore, the disease proved particularly challenging for many of Africa’s emerging economies. Moreover, as this year’s burly 465% stock gain authoritatively supports versus overused, short-covering excuses from Jumia’s critics, there’s likely more to come for JMIA stock, with much more to back it up in 2021 and beyond.
Examining JMIA Stock’s Weekly Price Chart
Source: Charts by TradingView
I wouldn’t call Jumia a “generational buy.” I hate hyperbole. But others gladly will. In October, notorious short-seller Citron Research reversed its long-standing bearish position on JMIA stock along with that exact declaration. The bullish call happened to occur a couple weeks following my upbeat assessment on the shares discussed here. And while Jumia is somewhere in the vicinity of 300% – 350% higher from that value purchase, the price chart is offering new reasons to remain positive.
Technically, the rally over the last couple months has cleared significant Fibonacci-based resistance and has Jumia shares trading within a short or smallish cup-style base. With the pattern’s low finding support off the stock’s lifetime 50% retracement level, the price action appears structurally promising. However, an oversold bearish stochastics crossover does warrant some caution. But today’s caution doesn’t mean backing down altogether.
For now, I’d propose watching Jumia for a momentum-style, buy decision in the near future. That’s right, a purchase in Jumia is about buying strength in today’s market, not weakness. If a base breakout triggers in conjunction with stochastics properly re-aligned in overbought territory, buying JMIA will have a lot working in its favor to propel shares quickly and forcefully higher.
Conservatively, Jumia’s all-time-high near $50 could easily be captured inside a couple of weeks following this kind of buy signal. Sorry bears. As for positioning and given what’s been presented, JMIA stock is not a generational buy, but the Feb $45/$55 Bull Call Spread is a favored choice for investors seeking a limited and reduced risk way to leverage that potential.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.