Jumia Technologies (NYSE: JMIA) is not exactly a household name in the United States, but many investors are becoming familiar with the rise African e-commerce star Tuesday, after a Benchmark analyst initiated coverage of Jumia with a “buy” rating and a $14 price target.
Valued at just $8 and revised ahead of today’s rating, Jumia shares soared in afternoon trading, topping $11 a share as of 1:45 p.m. ET — a 30% gain.
Presentation of Jumia Technologies
In a StreetInsider.com article this morning, Benchmark’s Fawne Jiang argues that thanks to Africa’s population explosion, Jumia is “poised to benefit” from “multi-year and potentially multi-decade growth in e-commerce.” Africa, the analyst argues, is both a “vast” and “underserved” market, and Jumia offers “customized logistics and payment services” to help grow e-commerce on the continent.
Adding to the appeal, Jiang notes that Jumia is currently “the only true pan-African e-commerce operator,” and therefore the only e-commerce business on the continent that can operate at scale. This allows the company to either 1) dominate the African market, or 2) present itself as an M&A target for an international e-commerce company… or potentially 1) followed by 2).
Is Jumia stock a buy?
But here’s the bad news: Despite its considerable potential, Jumia is not yet a profitable company. It has lost over $110 million in the past year and has burned through over $50 million in cash. Furthermore, most analysts who follow the stock don’t see Jumia becoming profitable for at least two years (which is the most anyone can expect).
The good news is that Jumia is making steady progress towards Profitability. Five years ago, Jumia was losing over $250 million a year, so losses have already halved. And cash burn five years ago was four times higher than it is today. While investing in Jumia is not a sure thing, the stock seems to be moving in the right direction and is worth watching.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position…
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