What happened

Shares of Jumia Technologies (NYSE:JMIA) plunged 38% in May, according to data provided by S&P Global Market Intelligence, after the African e-commerce company was targeted by a prominent short-seller. The drop reversed most of the impressive gains Jumia enjoyed following its early April initial public offering and provided a stark reminder of the risks associated with investing in early-stage companies and emerging markets.

So what

Jumia investors ran for the exits in early May after well-known short-seller Citron Research called Jumia an "obvious fraud" in a research report. Citron said Jumia only went public because two of its largest investors, MTN and Rocket Internet, wanted an exit, and it fudged its numbers in order to win interest from American investors.

Nigerian news sources have also questioned Jumia's fundamentals, according to Citron.

A man rests his head on the table; there's a falling stock chart on the wall behind him.

Image source: Getty Images.

Jumia side-stepped addressing Citron's accusations when releasing quarterly earnings mid-month, announcing sluggish top-line growth and a widening loss. The company reported a net loss of 45.8 million, down from a 34.1 million euro loss previously. Jumia did not report results on a per-share basis.

The news wasn't all bad for Jumia. The company grew active customers to 4.3 million from 3 million a year prior and said gross merchandise volume was up more than 50%. It also announced a partnership with Mastercard, which made a 50-million-euro private placement concurrent with the IPO, to focus on the e-commerce company's JumiaPay payment platform as well as co-branded products like credit cards.

Now what

Emerging markets are fraught with risk even without short-seller scrutiny, and investors who are jumping in because they believe Jumia will quickly ascend to highs reached by other e-commerce platforms are likely to be disappointed.

Even after the slide, Jumia trades at 14 times annualized revenue. Investing in Africa is intriguing, and investors with a high risk tolerance can be justified in taking a small stake in Jumia as one of the few pure-play African operators. But as recent trading has made clear, there is still a lot that can go wrong for the company.