Costco (NASDAQ:COST) and Jumia (NYSE:JMIA) likely appeal to very different types of investors.

Costco, which operates over 800 warehouses worldwide, locks in shoppers with its sticky membership plans. It generates nearly all of its profits from those memberships, so it can afford to sell its products at razor-thin margins.

Jumia is a German company that provides e-commerce and digital payment services to about a dozen African countries. It's struggled with slowing growth over the past year and remains unprofitable.

Costco generally attracts more conservative investors, while Jumia is a more speculative play on the growth potential of Africa's nascent e-commerce and fintech markets.

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But over the past 12 months, Jumia's stock skyrocketed nearly 600% as Costco's stock advanced just over 20%. Should investors take a chance on Jumia or stick with Costco's more reliable returns?

Why weren't the bulls more excited about Costco?

Costco's revenue grew 9% to $166.8 billion in fiscal 2020, which ended last August. Its comparable sales improved 9.2%, its e-commerce sales jumped 50%, and its earnings increased 9%.

Costco's growth accelerated in the fourth quarter as the pandemic caused shoppers to stock up on more household essentials, and that momentum continued throughout the first half of fiscal 2021.

In the first half of 2021, Costco's revenue grew 16% year over year to $88 billion, with 15% comps growth and 80% e-commerce sales growth. Its earnings grew 19%, even as it absorbed higher COVID-19 expenses.

Costco's renewal rates, which drive its profit growth and widen its moat, also remained high. Its renewal rate in the U.S. and Canada rose year over year, from 90.9% to 91%, in the second quarter. Its global renewal rate grew from 88.4% to 88.5%, and it continued to open new stores.

Wall Street expects Costco's revenue and earnings to grow 13% and 14%, respectively, for the full year. But next year, it expects revenue and earnings to rise just 7% and 10%, respectively, as the pandemic ends.

Those growth rates look healthy, but the stock is already trading at 34 times forward earnings. That higher price-to-earnings ratio, along with expectations for a post-pandemic slowdown, seemed to keep the bulls away.

Why were the bulls so excited about Jumia?

Jumia's revenue fell 13% to 139.6 million euros ($167.4 million) in fiscal 2020, which aligns with the calendar year. Its operating loss narrowed from 227.9 million euros to 149.2 million euros ($178.9 million).

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Jumia's sluggish growth was disappointing, especially since many other e-commerce companies generated accelerating growth throughout the pandemic. However, those declines were mainly attributed to Jumia's efforts to streamline its business.

It shuttered its operations in Cameroon, Tanzania, and Rwanda in 2019, increased its dependence on third-party sellers (which generate lower revenues but higher margins than its first-party marketplace), and pivoted from pricier products like electronics toward cheaper consumer staples to attract more shoppers.

Those moves all throttled its revenue and GMV (gross merchandise volume) growth, but its other core metrics are improving.

Its number of annual active customers rose 12% to 6.8 million for the year, its total orders increased 5% to 27.9 million, and its TPV (total payment volume) jumped 58% to 196.4 million euros ($235.5 million). Its total transactions on JumiaPay, its digital payments platform, increased 26% to 9.6 million.

Those numbers seem small relative to the African continent's total population of nearly 1.4 billion, but they could quickly rise as income levels and internet penetration rates rise.

Analysts expect Jumia's revenue to rise 22% this year against easier year-over-year comparisons, but the stock still trades at about 13 times this year's sales. That price-to-sales ratio makes it cheaper than some of the tech sector's higher-growth stocks, but it's still a bit high for an unprofitable company with uneven sales growth and unpredictable headwinds.

The winner: Costco

I'm not a big fan of either stock right now, since Costco looks a bit pricey and Jumia remains a speculative bet.

But if I had to pick one over the other, I'd stick with Costco for its sticky business model and ongoing expansion. It isn't cheap and its forward dividend yield of 0.8% is low, but it should remain a good evergreen stock for long-term investors who look beyond the pandemic.

Jumia still has a lot of growth potential, but it also faces aggressive regional competitors and daunting macro headwinds like inflation, recessions, and political instability across several of its top markets. It still has a lot to prove before it can be considered a stable long-term investment like Costco.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.