Why Jumia Technologies shares surged 30% on Tuesday

Jumia Technologies (NYSE:JMIA) is not a household name in the United States, but many investors got a glimpse of the rising star in African e-commerce on Tuesday after a Benchmark analyst began coverage of the Jumia stock, giving it a “buy” rating and setting a price target of $14.

Jumia shares, valued at just $8 premium before today’s review, surged this afternoon, surpassing $11 per share by 1:45 p.m. ET, a 30% increase.

Introducing Jumia Technologies

Writing on StreetInsider.com this morning, Benchmark’s Fawne Jiang says that thanks to Africa’s population explosion, Jumia is “poised to benefit” from “multi-year, and potentially multi-decadal, growth in e-commerce.” The analyst says Africa is both a “huge” and “underserved” market, and Jumia offers “tailored… logistics and payments services” to help expand 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 company on the continent that can operate at scale. This sets the company up 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).

Are Jumia shares worth buying?

Here’s the bad news: As big as Jumia’s potential may be, it’s not yet a profitable company. It’s lost more than $110 million over the past year and burned through more than $50 million in cash. Most analysts who follow the stock also don’t see Jumia becoming profitable for at least the next few years (which is as far off as anyone could predict).

The good news is that Jumia is making steady progress towards profitability. Five years ago, Jumia was losing more than $250 million a year, so losses have already been cut in half. 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 heading in the right direction and is worth watching.

Is it worth investing $1000 in Jumia Technologies Ag now?

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

Why Jumia Technologies shares surged 30% on Tuesday was originally published on The Motley Fool