The e-commerce industry has been one of the hottest places to find lucrative investment opportunities in the stock market for a while now. Companies like Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP), and Alibaba (NYSE:BABA) have been rewarding investors with truly incredible gains as a result of the pandemic and a perceived shift in consumer shopping habits towards online e-commerce platforms. Consequently, there are several lesser-known stocks involved in e-commerce that are also seeing a boost in share price as a result of these market trends.
Jumia Technologies (NYSE:JMIA) is the perfect example of one of the companies that have been seeing a lot of speculative activity in recent weeks. It’s a business that provides an e-commerce platform in Africa’s largest countries, which is a region with a lot of untapped potential. Investors have been buying up shares in a frenzy and the stock is up over 270% since July 1st. While you can’t argue against the fact that e-commerce is here to stay, Jumia Technologies stock has a history of controversy that shouldn’t be ignored. Let’s take a look at why Jumia Technologies stock is rallying and determine whether or not it’s a buy at this time.
Jumia Technologies Interesting Business Model
Regardless of whether you believe that the rally in Jumia’s stock is sustainable, you have to admit that it’s a company with a smart business model. It operates an online e-commerce marketplace that receives over 1 billion visits annually, handles logistics to ship and deliver products, and also features a payment platform. Jumia is a start-up, so there will certainly be hiccups along the way, but the fact that this company is at the forefront of Africa’s growing e-commerce market is definitely a plus.
One of the things to note about Africa is that there are still tons of people that don’t have access to the internet. In fact, 24% of the population does not have a mobile internet subscription. That seems to be changing quickly, thanks to Facebook (NASDAQ:FB) partnering up with major telecom companies in order to build a 23,000-mile subsea internet cable called 2Africa which will link up 16 countries in Africa to Europe and the Middle East. With more people gaining access to the internet in Africa, it could potentially translate to additional revenue for Jumia.
Jumia Technologies Market Catalysts
There are a few reasons why Jumia Technologies has been so hot lately. First, we have the global pandemic and how it is affecting the way that people shop. With people stuck at home or avoiding in-person shopping, e-commerce companies are benefitting. Jumia recently launched its service in South Africa and also has seen promising results from its Jumia Food business which is a food delivery service similar to Uber Eats. Jumia’s 8th annual anniversary sales promo started in June as well. These are positive headlines for the company which could help to explain the price move.
We’ve also seen blowout earnings reports for several e-commerce companies already, and it appears that investors are hoping that the trend continues for Jumia. The company will report its Q2 earnings on August 12, 2020, before the U.S. market opens. It looks like investors are banking on the fact that Jumia will deliver strong earnings results, but keep in mind that this stock has a volatile trading history. In fact, the stock reversed hard and was down over 22% in Tuesday’s trading session.
Jumia Technologies Controversial Beginnings
When Jumia Technologies started trading in August of 2019 with an IPO price of $14.50 a share, it was considered Africa’s first “unicorn” company, or a privately owned startup company valued at over $1 billion. Things got off to a hot start for the stock, as its share price soared to an all-time high of $49.99 back in 2019. However, things quickly took a turn for the worse when the company had to deal with accusations of fraud, tons of internal issues, and short-sellers driving the price down.
Investors quickly soured at the prospect of owning Jumia Technologies, and the stock completely fell off of a cliff. It’s was trading at a 52-week low of $2.15 back in March, so what changed? The company’s Q1 earnings showed increasing consumer demand on its platform and the pandemic-narrative has definitely helped the share price pick up steam in recent weeks. With that said, the recent run-up is primarily speculative and isn’t necessarily being driven by any particular news.
Is Jumia Technologies a Buy?
With an intriguing business model, room for growth in an emerging market, and positive market catalysts working in its favor, Jumia Technologies has been generating some truly jaw-dropping returns. There’s no denying that the company has potential, but investors should be extremely careful about adding shares at this time. Volatility is essentially guaranteed for this stock going forward and it has yet to report a profit. If you have a high-risk tolerance and want to pick up shares, it’s wise to wait until after the market has digested Jumia’s Q2 earnings announcement.
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7 Tech Stocks to Buy Now For a Post Coronavirus Economy
The Covid-19 pandemic has created a new “tech wreck”. But unlike the broad selloff at the end of 2018, this downturn has been more selective. Some stocks that looked like they were a little overbought have seen their share prices lowered.
In some cases, there was a legitimate reason for this. However, in other cases, it was likely a result of profit-taking disguised as something else. That’s the nature of a crisis. It gives investors the cover to do what they wanted to do anyway. But once investors start to sell, it can trigger a herd mentality.
And that’s when savvy investors start to look for opportunities. Because as Warren Buffett famously said, “Be greedy when others are fearful.” Tech stocks will lead the way back when the pandemic is over. Because if there’s one thing this moment in time is teaching us, it’s that we’re not going to be less dependent on technology. Businesses aren’t going to be doing less digital advertising. Consumers aren’t going to do less e-commerce.
But the fundamentals still matter. That’s why one of the common traits of many of these companies is that they have rock-solid balance sheets.
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