Jumia Technologies Stock Has Fallen Too Far

It’s funny how the market can dislike a company, then love it, and then dislike it again. Such has been the fate of Jumia Technologies (NYSE:JMIA) in 2021 as the owners of JMIA stock have been subjected to a veritable roller-coaster ride.

Jumia (JMIA) banner at the New York Stock Exchange

Source: Christopher Penler / Shutterstock.com

I actually pounded the table in favor of Jumia back in early March. My hypothesis was that African e-commerce and the company itself would enjoy an upward growth trajectory.

It’s too early to determine whether that thesis will pan out. However, there’s no denying that JMIA stock declined after I issued my bullish call.

In the short term, there’s nothing wrong with being wrong. Sometimes we just have to be patient, see the big picture and hold onto our positions.

A Closer Look at JMIA Stock

So let’s talk about that roller-coaster ride I alluded to earlier.

If we rewind to September 2020, it’s evident that the market sentiment surrounding JMIA stock was quite negative at that time.

It was actually possible to purchase the shares for $8, believe it or not. That turned out to be a real bargain, as the shares were about to rally.

In late 2020 and early 2021, the bulls completely took over JMIA stock. Amazingly, they pushed it up to a 52-week high of $69.89 on Feb. 10, 2021.

There’s a lesson to be learned from Jumia’s journey: If you own a stock and it happens to go up 700%, please consider taking profits.

The price chasers were promptly punished, as JMIA stock commenced a six-month decline in mid-February. By Aug. 6, the stock was down to $21 and change.

Easy come, easy go, as they say. Yet Jumia may give you an opportunity if you’ve been sitting on the sidelines, you are just learning about Jumia now, or you wanted to add to an existing position in JMIA stock.

It’s an Overreaction

Pinpointing the exact cause of Jumia’s 700% jump isn’t a simple task.

I suspect that Reddit traders might have been involved. However, it would be difficult to prove or disprove this.

Either way, it’s not unreasonable to say that the rally was too much, too fast. A retracement was almost inevitable.

That being said, the move to the downside seems overdone. The market has, in effect, completely ignored Jumia’s progress in 2021.

During the first quarter, the company’s gross profit increased by 11% year-over-year.

Moreover, Jumia’s gross profit after fulfillment expense improved by an astounding 149% YOY. Plus, the company’s EBITDA loss, excluding some items, shrank by 24% YOY.

Furthermore, Jumia ended the quarter with a healthy cash balance of 485.6 million EUR (bear in mind that the company is actually based in Germany, not Africa).

Don’t Forget About JumiaPay

It might be tempting to pigeonhole Jumia as nothing more than an e-commerce platform where products are bought and sold.

However, investors shouldn’t ignore JumiaPay, which has the potential to change the way financial transactions are conducted on the African continent.

It’s a major part of Jumia’s business model. In fact, 37% of the company’s orders during Q1 were completed using JumiaPay.

And we’re not just talking about tiny transactions.

Impressively, JumiaPay transactions above 10 euros (including prepaid purchases on the Jumia physical goods marketplace and Jumia Food platforms) increased by 30% last quarter versus the same period a year earlier.

It appears that the company is serious about making JumiaPay an all-in-one personal finance solution.

Check out the JumiaPay website and you’ll see what I’m talking about. First, the users of the website can use it to recharge their phones and pay their utility bills.

Next, they can make hotel reservations and book a ride with JumiaPay. Also, they can use it to order food from their favorite restaurant.

Additionally, JumiaPay’s users can take advantage of great deals and pay some bills. Thus, it’s a platform that can keep consumers coming back again and again.

The Bottom Line

So now you have a clearer picture of Jumia’s value proposition.

An argument could be made that JMIA stock soared too high earlier this year.

Yet the share price has come down during the past six months, even though Jumia remains well-capitalized.

As a result, the stock’s decline presents an excellent buying opportunity for open-minded investors with a long-term time horizon.

On the date of publication, David Moadel 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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/08/jmia-stock-is-down-too-much-and-should-test-70-again/.

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