Please ensure Javascript is enabled for purposes of website accessibility

Jumia Stock Crashed 24% Today: What You Need to Know

By Jason Hall – Aug 4, 2020 at 3:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After weeks of rocketing higher, investors are cashing out prior to the company's earnings next week.

What happened

Shares of Jumia Technologies (JMIA -4.75%) are having one of their worst days in a long time. As of 2:25 p.m. EDT on Tuesday, Jumia stock is down 23.8%, falling hard and fast after jumping 10% higher at the open this morning. Today's sell-off is a sharp reversal from what investors have enjoyed over the past few months. In the last week alone, shares are still up nearly 60%, and investors are still sitting on 413% in gains since late March. 

So what

Just like yesterday's big 28% gain, today's sell-off doesn't look to have any specific news driving it. The selling is likely just the other side of Monday's buying: investors looking to capitalize on this fast-moving e-commerce stock, likely by selling on the massive recent gains, and taking some profits. 

Person of color making ecommerce purchase with smartphone.

Image source: Getty Images.

There's another potential consideration: short-sellers. Jumia has run into some issues since going public, and became the target of a short attack that went so far as to call the company an "obvious fraud" soon after going public, crashing the share price more than 90% from the high at one point. 

While the short percentage fell when the market crashed earlier this year, short-sellers have started piling back into Jumia. Since late March, the percentage of Jumia shares sold short has increased 58% while the stock has surged:

JMIA Chart

JMIA data by YCharts.

There's a good chance that some of today's big decline is a product of short-sellers looking at Jumia as a stock that's run way too far, way too quickly. 

Now what

As last reported, almost 19% of Jumia's shares were sold short, meaning they need to see the stock price fall to make a profit, and it's reasonable to guess that some of today's "selling" was actually short-sellers opening or adding to existing short positions. 

This is part of the risk with Jumia: So much interest in the company, both on the bull and bear sides, makes it an incredibly volatile stock, even on days when there's not really anything material happening. And all that volatility can make it hard to just sit on your hands and not do something

But there's something more important investors should consider: Jumia is not yet profitable, and despite all of its growth in users and transactions so far, it continues to burn cash at a high rate. Until the company gets to where its cash flows are sufficient to fund its operations and growth spending, there's risk that the business will never reach its potential to become Africa's dominant e-commerce platform. The company reports second-quarter results on Aug. 12, so tune in here for a closer look. 

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Jumia Technologies Stock Quote
Jumia Technologies
$5.82 (-4.75%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.