Shares of African e-commerce giant Jumia Technologies (JMIA +6.94%) rallied 22.3% on Tuesday as of 2:35 p.m. ET.
Jumia didn't release any company-specific news today, but did receive a rather large price target increase from a sell-side analyst.
NYSE: JMIA
Key Data Points
Jumia jumps at RBC
Today, RBC analyst Brad Erickson raised his price target on Jumia from $6.50 all the way to $15 per share. Even after today's rally, the stock only trades around $12 per share.
A near-tripling of a price target is a massive increase, usually accompanied by a step change in the analyst's outlook for a company. In this case, Erickson sees the prospect for both revenue growth and cost reductions over the next few years.
The change in outlook came on the heels of a meeting with management, who proclaimed it sees an easing of currency pressures in its end markets, which are in West, East, and North Africa. Management also touted increased leverage over Chinese sellers, which Erickson believes will allow Jumia to increase its take rate -- the percentage of sales it collects from sellers -- by half to a full percentage point annually over the next few years. Management also sees a reduction in fulfillment expenses as it continues the efficiency efforts the company has had to implement during the lean times over the past few years.
Jumia is still generating an EBITDA loss, but if these improvements flip losses to profits in the not-too-distant future, that could lead to a big rerating on the stock.
Image source: Getty Images.
Jumia remains high-risk, high-reward
Jumia certainly has the prospect of being a big winner, as the maturation of the economies and internet access is lower in Jumia's target countries than in other places. Moreover, the company's balance sheet is in pretty good shape, with about $96 million in cash against just $13 million in debt.
If Jumia can continue making progress toward profitability, which management forecasts by the end of 2026, then the stock can continue rising. However, Jumia is a riskier play than other profitable e-commerce giants that play in larger, more stable economies, and is only appropriate for risk-on investors.
