As seen from its performance year-to-date, investors for the most part have rightfully exited out of Jumia Technologies (NYSE:JMIA). But with its recent surge in price, some may be looking to give JMIA stock a second chance.
I can see why. After giving back all its gains from early 2021, shares in the African e-commerce platform could appear oversold. With its recent bit of positive news, it may seem as if the company is about to turn a corner.
But, at this point, it’s too early to tell. It’s possible that its ramp-up in sales and marketing spending is starting to pay off. Yet until we receive further information, it’s not for certain.
Along with this is another concern. Black Friday sales may have gone up, but at what cost? In other words, with the company’s new focus on lower-margin goods, is the increase in sales sufficient to cover its operating expenses?
Until these questions are answered, it’s best to continue taking a “wait and see” approach, and hold off buying.
JMIA Stock and its Black Friday Sales Numbers
On Dec. 7, as InvestorPlace‘s William White reported, Jumia announced it had strong results during the Black Friday sales event on its platform. Gross merchandise volume (GMV), an important metric for e-commerce was up 30% year-over-year. Total orders were up 39%.
As a result, shares soared by as much 26.7% on that day, as many dived back into JMIA stock. Again, I can understand why this resulted in such excitement. While the company calls the event “Black Friday,” this was a bit different than the day-after-Thanksgiving shopping day we see in the United States.
Running from Nov. 5-30, this is more of an all-month sales event. With these numbers fresh on investor’s minds, it makes some sense why many may be seeing this a sign that the company’s efforts are finally succeeding.
Still, taking this bit of data, and assuming it means better times are just around the corner, may be a case of jumping to conclusions. Its strong results during November may not be indicative of its results for the full fiscal quarter (ending Dec. 31). Not only that, it’s still unclear whether increased sales means its inching closer to profitability.
Jumia’s Shift to Low Margin Products Could Be a Red Flag
The Black Friday sales event numbers may be positive. However, this data point isn’t enough for me to change my tune on JMIA stock from bearish to bullish. For that to happen, I’d like to see some more data showing that the company’s GMV and customer numbers are trending up.
Instead, besides these latest numbers, all we have to work with are the mediocre numbers presented in its most recent earnings report. Last quarter (ending Sept. 30), GMV went up just 8% year-over-year. The company’s number of active customers also went up by the same percentage.
Beyond just increased sales volumes, margins are another area we need to see more on before deciding the story has changed. As Morgan Stanley’s Luke Holbrook discussed in his Nov. 29 downgrade of JMIA stock, an area of concern has been the company’s decision to pivot its focus from selling electronics, to selling everyday items like groceries.
Shifting focus to high-volume products, sales may go up. But the lower margins may not be sufficient to cover the increased sales/marketing costs. This could be what is going on with the better-than-expected Black Friday numbers. The company may be seeing its sales moving up, meanwhile its losses widen rather than narrow.
The Verdict on JMIA Stock
Besides the concerns that it’s chasing sales at the expense of margins, other issues are still on the table. Until Africa’s digital infrastructure is built up, e-commerce is going to remain low. That’s not completely bad news for Jumia, of course.
Given it’s an early mover in the continent’s frontier markets, the eventual payoff from its efforts could be well worth it in the end. The issue lies with when this “payoff moment” will finally arrive. Like how co-CEO Jeremy Hodara put it in an October interview with BBC.com when asked about when the company expects to become profitable: “We’re not communicating a timeline…”
Put simply, it’s no surprise that speculators have jumped back into the stock, just on the Black Friday headlines. But until further information comes out, my take on Jumia stays the same. In other words, it’s still getting an “F” rating in my Portfolio Grader.
Until it’s fully evident that its platform its finally starting to take off, it’s still best to steer clear of JMIA stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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