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.
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.
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:
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.
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.