Why Jumia Technologies Jumped Over 22% Today

Key Points

• A Wall Street analyst nearly tripled his price target on Jumia shares today.

• The upgrade comes on the heels of a meeting with management.

• The e-commerce player could make substantial progress toward profitability in the next few years, the analyst said.

• 10 stocks we like better than Jumia Technologies Ag ›

Shares of African e-commerce giant Jumia Technologies (NYSE: JMIA) 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.

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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.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.