Jumia Technologies AG (NYSE:JMIA) stock’s movement earlier in 2021 can be described in just three words. Pump and dump.
Sounds familiar? It should. If not, here’s a quick reminder. Wikipedia mentions that it “involves artificially inflating the price of an owned stock through false and misleading positive statements, to sell the cheaply purchased stock at a higher price. Once the operators of the scheme ‘dump’ (sell) their overvalued shares, the price falls and investors lose their money.”
It is an illegal market manipulation fraud. JMIA stock has a 52-week range of $7 – $69.89, making its 52-week high on Feb. 10, 2021. Since then, the stock has fallen to $20.01 as of the close on Sept. 1. A 71% selloff — or put another way, a costly investing lesson. But what is my opinion on JMIA stock now?
Jumia Is a Meme Stock That Had Its Wild Days
One of my questions for the rest of 2021 is whether meme-stock mania will end, along with special-purpose acquisition companies (SPACs) and the EV-stock frenzy. You do not have to be an analyst to understand that this trend is too risky and irrational, feeding stock market bubbles.
Before analyzing the stock chart for this e-commerce platform that operates in Africa, Portugal, Germany, and the United Arab Emirates, someone might expect one of two things. First, maybe its meteoric rise in early 2021 was a “hustle.” Second, perhaps its fundamentals were so strong that this stock was hard to miss half a year ago. It was a bargain.
Unfortunately for investors, I think only the “hustle” story looks to be true. You know, the retail investors on Reddit or other social media forums that pick stocks based on the short ratio or their penny stock status, and then pushed stocks high for quick profits.
But why do I argue believe this about JMIA stock?
Africa E-Commerce: Growth, But Risks
A report by IMARC on the prospects of Africa e-commerce in the next five years mentions that “The Africa E-commerce market grew at a CAGR of around 40% during 2015-2020. Looking forward, IMARC Group expects the market to continue its robust growth during 2021-2026. Keeping in mind the uncertainties of COVID-19, we are continuously tracking and evaluating the direct as well as the indirect influence of the pandemic on different end use industries. These insights are included in the report as a major market contributor.”
This is the good news for Jumia Technologies. The bad news is that a report by IMF ( the International Monetary Fund) about the challenges in sub-Sahara Africa is not optimistic at all. Some of the key highlights are:
- Low economic growth in Sub-Saharan Africa — it is expected to lag the rest of the world in 2021.
- Difficulty getting populations vaccinated against Covid-19 in that area.
- A Covid-19 impact that threatens to “undo years of economic and social progress and leave lasting scars on the region’s economies.”
Now, the report also mentions that “Every day, more than 90,000 new users in sub-Saharan Africa connect to the internet for the first time.” This digital revolution could be very supportive for Jumia — if it was not for the presence of Covid-19. Remember, the report says that it will take many years for Africa to regain its pre-Covid-19 financial strength.
For any business, the main country, market or environment in which it operates is vital for its success or failure.
Would you invest in the slowest-growing region in 2021 and in a company that mainly operates there? If you answer yes, then you are a contrarian with a high risk tolerance. If you answer no, then you approach things as a more traditional investor. There is no right or wrong, there is just logic versus hope. I always support logical investment decisions.
A Look at JMIA Stock Financials
The second-quarter 2021 earnings showed a decline in GMV and TPV (Gross merchandise value and total payment value). Orders increased 13% year-over-year, and gross profit grew 16%. But at the same time, an increase in the loss reported both for adjusted EBITDA and operating loss. A 4.6% year-over-year increase of revenue to $40.2 million was reported, along with an operating loss of $51.6 million, up 25% year-over-year.
The revenue growth for the past three years is both modest and volatile, with a decline of -11.35% to $159.17 million in 2020. Profitability is an unknown, since as of 2017 the company is unprofitable.
3 Reasons to Avoid JMIA Stock Here
Jumia is burning cash, having negative free cash flows since 2017.
In 2020 the company completed an at-the-money stock offering as it was reported that “All 7,969,984 ADSs offered by Jumia have been sold at an average price of $30.51 per ADS, generating aggregate gross process of $243.2 million. Proceeds, net of commissions and expenses, are expected to be $231.4 million. Jumia intends to use the net proceeds from this offering for general corporate purposes.”
This is stock dilution, which is not good for valuation. According to Yahoo! Finance, the stock has a price/sales (ttm) ratio of 12.2 and a price/book (mrq) ratio of 3.9. These ratios are far from bargain levels.
But if I had to choose only one single reason to avoid JMIA stock, that would be the macroeconomic environment mentioned above. It is time to be realistic on Jumia now and avoid it. Sluggish sales growth, stock dilution, cash burn, and an unprofitable company overall. You should not be excited about that — I know I’m not.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
