Shares of Jumia Technologies (JMIA -4.57%) were soaring last month even as investors largely rejected the African e-commerce company's third-quarter earnings report, selling the stock on the news. Later in the month, a speculative frenzy driven by a possible short squeeze and bullish remarks by well-known investors lifted the stock. As a result, the Jumia shares finished November up 115%, according to data from S&P Global Market Intelligence.
As you can see from the chart below, the gains came primarily in the third week of the month.
Jumia stock actually fell 19% on Nov. 10 after its third-quarter earnings report came out. In an environment where e-commerce companies have largely thrived around the world as the pandemic has driven a significant chunk of retail sales online, Jumia still reported a decline in both revenue and gross merchandise volume (GMV), or the total sales on its platform including its marketplace. While the decline in revenue seems justifiable given the company's transition to third-party sales, the decline in GMV is harder to explain. Nonetheless, the company did see an improvement in gross profit and narrowed its operating loss.
Despite the sell-off, the stock began to surge on Nov. 17, though it was unclear why. A short squeeze seemed to play a role as the rally picked up speed over that week and nearly half of the stock's float is sold short. Another factor could be bullish comments from well-known investors like Citron Research's Andrew Left, who called the stock a generational buy and said it was headed to $100 a share. Also, Short Hills Capital Partners Chief Investment Officer Steve Weiss went on CNBC and said he was bullish on the stock. Both remarks seemed to help fuel the rally.
Investors may be looking to Jumia for a repeat at big winners like MercadoLibre and Sea Limited, international e-commerce stocks that have delivered huge returns. However, Jumia faces a number of challenges, including revenue and GMV moving in the wrong direction. The company has several potentially promising businesses, including digital payments and logistics, but African infrastructure is behind other parts of the world, making e-commerce difficult, and the company had an accounting scandal earlier around inflated orders.
Investors should tread carefully with Jumia as this is clearly a high-risk stock.