Despite all of the red flags surrounding Jumia (NYSE:JMIA) in terms of valuation, there’s too much to like about it. JMIA stock is a buy.
Sure it’s overvalued if you consider it in the vacuum of financial analysis. But that’s the beauty of the stock market – the objective can be trumped by the subjective. As a matter of fact, 2020 is a sterling example.
Lots of investor dollars flowed into equities that may not have had great fundamentals. Numbers seemed to defy the financial decisions that moved the markets at large. Instead, investors voted with their hearts in a sense.
And that’s a good part of the reason that Jumia makes sense as an investment.
Amazon Comparison and JMIA Stock
Whether Jumia becomes to African ecommerce what Amazon is to ecommerce in the U.S. and Alibaba is to China depends on many factors. I don’t claim to know whether the company can address those factors and overcome hurdles.
But one thing is clear: the ecommerce market is untapped to a high degree in Africa. The ecommerce company that scales first is going to have a major advantage. And Jumia looks like it has the best shot to do so right now.
Africa has very attractive metrics overall. The continent is largely untapped, and its consumers are just like those in every other corner of the world: They want to purchase goods online.
Stripe co-founder Patrick Collison noted that ecommerce should grow at about 30% each year in Africa. More than half of population growth between now and 2050 is going to come from the continent.
Jumia’s current footprint covers 11 of the 54 countries that make up the African continent. That may make it seem that Jumia is not the “only scaled e-commerce player in Africa,” as Citron Research described it.
It would seem that having a presence in only 11 of 54 nations couldn’t possibly represent scale. But those 11 nations represent 70% of the continent’s internet users, and more than 70% of its GDP. It seems very clear that Jumia has secured the first-mover advantage.
Jumia’s revenues declined through the first nine months of 2020 compared to 2019. The company shifted from a first-party revenue focus to a third-party revenue focus which led to a 17.7% decline in revenues but became more efficient in the process.
Gross profits increased by 22.5% in the same period. While Jumia did show improvement, it should be noted that the company did record a comprehensive loss overall.
Then there’s the problem of valuation. When you value it like Amazon, MercadoLibre (NASDAQ:MELI), or Alibaba, the current share price of over $40 makes it overvalued and subject to downward price pressure.
Avoid thinking too much about that because this company simply has a massive opportunity in front of it. Jumia has already scaled across the continent with essentially no competition, and it has carved out its path. It’s time for it to define African ecommerce.
The Bottom Line on Jumia Stock
Investors can go with the bears who’ll argue all day that JMIA stock deserves a $10 share price. Or they can go with pundits like Citron Research who learned their lesson and now believe Jumia’s current assets justify it being valued at $7 billion.
If they’re right, that means JMIA should be worth $100 now. Maybe it comes down slightly in the short term but Jumia looks like it’s going much higher for the long term.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.