Why Jumia Technologies Stock Soared 30% on Tuesday

Ready to invest in African e-commerce? This stock could be your best bet.

Jumia Technologies (JMIA 29.91%) is hardly a household name in the United States, but a lot of investors are getting familiar with the rising African e-commerce star on Tuesday, after a Benchmark analyst initiated coverage of Jumia with a “buy” rating and a $14 price target.

Valued at just $8 and change before today’s rating, Jumia shares soared in afternoon trading, passing $11 a share by 1:45 p.m. ET — a 30% gain.

Introducing Jumia Technologies

Writing in StreetInsider.com this morning, Benchmark’s Fawne Jiang says that thanks to a demographic explosion in Africa, Jumia is “poised to benefit” from “multi-year and potentially multi-decade e-commerce growth.” Africa, argues the analyst, is a market both “vast” and “underserved,” and Jumia is offering “tailor-made … logistics and payment services” to help expand e-commerce on the continent.

Adding to the attraction, Jiang notes that Jumia is currently “the only true pan-African e-commerce operator,” and therefore the only e-commerce company on the continent that can operate at scale. This sets up the company to either 1) dominate the African market, or 2) present itself as a mergers and acquisitions target for an international e-commerce company… or potentially 1) followed by 2).

Is Jumia stock a buy?

Now here’s the bad news: As great as Jumia’s potential may be, for the time being, it’s not a profitable company. It lost more than $110 million over the past year, and burned through more than $50 million in cash. Most analysts who follow the stock, moreover, don’t see Jumia turning profitable for at least the next couple of years (which is as far out as anyone’s making projections).

The good news is that Jumia is making steady progress toward profitability. Five years ago, Jumia was losing more than $250 million a year, so losses have already dropped by half. And cash burn five years ago was four times as high as it is today. While an investment in Jumia is no sure thing, the stock does appear to be moving in the right direction, and it bears watching.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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