It remains clear that Jumia Technologies (NYSE:JMIA) and its stock are undergoing growing pains.
Is it an interesting e-commerce company? Definitely. Comparisons between it and Amazon (NASDAQ:AMZN) abound. Thus, pundits have dubbed it the Amazon of Africa.
Let’s be clear here: It has the potential to become to Africa what Amazon is to the U.S., but it’s nowhere near fulfilling that promise any time soon.
Jumia is one of many regional e-commerce companies looking to replicate Amazon’s business in less developed geographies. It aspires to become Africa’s e-commerce champion much like MercadoLibre (NASDAQ:MELI) is doing across Latin America.
Once investors ignore the hype though, a clearer picture emerges: Jumia isn’t a company that is preordained to succeed in bringing an integrated e-commerce champion to the continent of Africa. It might succeed, and it might not.
Right now, broad indicators suggest that investors keep an eye on JMIA stock, but not rush in yet.
Big Swings
Jumia share prices have witnessed two long patterns as a publicly listed entity. After being listed back in April of 2019, Jumia went from $25 to $40 in a matter of a few weeks, and then faltered.
It would trade in the teens and below $10 for over a year. Jumia shares then gained a lot of momentum in late 2020 and early 2021 eclipsed the $65 price range. Prices have gradually come down again, now trading for less than $20.
The point here is that Jumia share prices have followed two distinct boom and bust cycles. Based on that alone, it looks like Jumia has little reason to move upward now.
That’s not particularly convincing evidence I’ll be the first to admit. But there’s more concrete evidence that JMIA stock is likely to trade sideways for the time being.
One piece of evidence can be found in the sentiment of the analysts that cover Jumia itself.
Those seven Wall Street analysts believe Jumia is a hold, giving it a target price of $27.31. While that price indicates substantial upside from Jumia’s current $20 price, I’d tread carefully.
That’s because recent earnings reports show that Jumia isn’t headed upward soon.
Top Line Decline
Jumia is a growth stock so investors expect that its top line should indicate as much. Unfortunately, that wasn’t the case in the second quarter for Jumia.
Jumia measures its sales via a metric with the acronym GMV, meaning gross merchandise value. It equates to the value of merchandise sold over a given period of time.
In the second quarter of this year that metric moved in the wrong direction. Jumia recorded $223.5 million in Q2 GMV in 2021, 11% lower than the $251 million it recorded a year earlier.
The company also switched to dollars from euros following successive equity funding in early 2021. On that basis, GMV declined an even steeper 13.7%. By either metric, Jumia is moving in a direction that will make investors skeptical.
The lone bright within its metrics was that gross profit after fulfillment expense increased by 16.3%, from $6.6 million to $7.7 million. Any optimism around that was tempered by the fact that Jumia’s operating loss increased from $41.3 million to $51.6 million in the same period.
Takeaway
It may seem like I’m indicting Jumia as a stock that will never be investment worthy given what I’ve written above. I don’t believe that is necessarily the case.
But for now, it’s clear that there’s little reason to invest. Jumia has a long way to go, but the potential of Africa remains intriguing. So, while recent business results aren’t going to send investors rushing to purchase JMIA shares, it still can fulfill its promise.
Another way of stating that is to say keep watching from the sidelines. The story is far from written, but now is no time to move boldly.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
