Shares of Jumia Holdings (NYSE:JMIA) surged as much as 12% after trading opened on Oct. 9, following a tweet from short seller Citron Research early this morning. In the tweet, Citron said, in caps, "NO WAY" would it short Jumia's stock after the recent run-up in the share price. This is a sharp reversal from Citron's accusations in May 2019 when it called the company an "obvious fraud" and announced it was shorting Jumia stock.
Citron's timing on the May 2019 short could not have been better. Jumia shares cratered more than 50% in less than three months and had lost 80% of their value by the end of the year. But since the beginning of this year, shares are up 57% and up an incredible 337% from the lows during the coronavirus crash in late March.
Why the about-face? According to Citron, the "pandemic has changed" e-commerce globally, and the "worst is behind" for Jumia. This was a pretty sharp reversal from "obvious fraud," considering that, besides a few contractors who were gaming Jumia's system for their own profit, the allegations from Citron's short report haven't proven out.
Citron promised more in a report next week and said that it had "learned a lesson shorting" the e-commerce segment of retail.
In addition to the impact of Citron's short piece, the company struggled during its first year as a public company, with stagnant growth and rising costs causing it to burn through a lot of cash.
As a result, management made the decision to exit some markets in Africa and to focus on the geographies in which it was making the most progress toward profitability. In the second quarter, Jumia reported smaller losses than in prior quarters, a product of both cost-cutting and revenue growth.
The coronavirus pandemic has helped act as a catalyst for e-commerce all over the world, but in Africa, where last-mile logistics are notoriously difficult and e-commerce growth has been more difficult, Jumia could be gathering a lot of momentum as millions of people give online shopping a try for the first time.
Despite that eye-popping 337% in gains by Jumia shares, the company's stock is still down almost 60% below its IPO price and trades for less than five times sales. That's a very low sales multiple as compared to any other high-growth e-commerce stock and could represent an incredible entry point for investors.
Here's the rub: It's cheap because Jumia is still burning through cash and will do so until it gets to a much larger scale. So the price reflects the relatively higher risk than other international e-commerce upstarts. No matter what Citron's position is, keep that risk in mind before you do anything.