Markets

Jumia Stock Is Up 28% Today: What Investors Need to Know

What happened

Shares of Jumia Technologies (NYSE: JMIA) were up 27.8% as of 2:37 p.m. EDT on Monday, continuing a run that's seen the e-commerce company's stock more than double over the past week, and rocket 284% higher since the beginning of July. 

So what

Today's run-up looks to be a continuation of the bull run, without any news behind it. Jumia operates an e-commerce platform, offering distribution and product fulfillment in Africa's biggest countries. And just as in other parts of the world, the coronavirus pandemic has been a huge catalyst for increased e-commerce adoption, as consumers have shied away from traditional in-person retail shopping. 

Rising stock chart

Image source: Getty Images.

Investors seem to be betting that when the company reports second-quarter earnings next week, it will have experienced the kind of growth other international e-commerce companies have reported.

Now what

It's worth noting that, despite the wonderful recent run for Jumia's shares, they still trade about 20% below the early 2019 IPO price, and are still nearly 57% below the all-time high reached shortly after going public. Jumia's expenses were growing nearly as fast as revenue for a while, forcing management to rein in growth and focus more on the bottom line. 

Since late last year, management has been committed to a more balanced approach. There's a lot of hope that during the coronavirus pandemic, more people will give online shopping a try in Africa, moving the company closer to cash-positive results more quickly than previously expected. If that's the case, the bull run that's made Jumia shareholders happy in recent months could continue. 

With that said, anyone who buys shares of the company should do so with a willingness to ride out volatility to the downside as well. Investors who've made enormous gains so quickly could sell and take their profits. And if earnings disappoint, all the recent buyers could turn into sellers as a result. 

Jumia has a lot of promise, but it's still in cash-burning mode as it builds scale and attracts new customers to online shopping. Until it starts making a profit, there's a lot of risk

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Jason Hall owns shares of Jumia Technologies AG - ADR. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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