I can see why many investors are excited about Jumia (NYSE:JMIA). Basically, JMIA stock is a bold bet on the rise of e-commerce in Africa. Yet — while it has the potential to scale into a massive online shopping powerhouse — you shouldn’t put the cart before the horse.

That is to say, Jumia has its work cut out for it. What do I mean? Well, for instance, Africa didn’t see much of a post-pandemic boom in e-commerce sales like other markets across the globe.

Secondly, JMIA has a long way to go before it lives up to the investor comparisons to other e-commerce leaders. Not only does it face inadequate infrastructure, but the pandemic’s economic impact on Africa could continue to hurt growth in 2021.

Thirdly, even if the company finds success in the coming years, that doesn’t guarantee shares will see additional gains from here. With the recent dilution, the pie continues to be cut into more slices. Put it all together, and the story behind this “story stock” is less compelling than at first glance.

So, what’s the play here? Stay away for now. After rallying nearly 580% in the last six months, there’s little near-term upside left on the table. And, given that speculation (not fundamentals) drove the rally, it won’t take much for things to reverse course in the new year.

A Wild Ride for JMIA Stock

Since November, investors have rushed into JMIA stock as an e-commerce play. But, due to its lack of pandemic tailwinds, they were slow to dive back into it as the outbreak impacted the world, including its key markets in Africa.

Already down big before the outbreak — having fallen from about $40 per share to around $6 in 2019 — JMIA fell by another 50%-plus during the March crash. Shares recovered in the months that followed. But it was a slow crawl back towards pre-pandemic price levels.

However, two months back, investor enthusiasm returned to Jumia. Shares went parabolic, despite no game-changing news. Rallying from around $13 per share, shares briefly hit prices topping $47. But, as markets absorbed dilution news and other risk factors, the stock pulled back a little starting in December.

Some may see JMIA’s move down to around $35 per share as a great “buy the dip” opportunity. I say not so fast. With a myriad of issues affecting the bull cases, this stock has more room to fall.

Three Issues with Jumia’s Bull Case

Like I described above, there are three issues with the JMIA stock bull case.

First, unlike other regions, pandemic tailwinds for Africa’s e-commerce sector have been minimal. This was evident from the company’s third-quarter results. Sure, part of this disappointment was due to the company’s shift towards a marketplace business model. But even after accounting for this, growth wasn’t much to write home about.

Second, the continued impact of the pandemic adds yet another hurdle for Jumia to climb. Major continental economies like South Africa are still trying to recover economically from Covid-19. And, with concerns that the new vaccines may not be enough to combat recently discovered variants, it’s questionable whether things will materially improve in 2021.

Third, even if the company succeeds in becoming an e-commerce dynamo in Africa, further gains in JMIA stock may be limited. Why? Dilution.

At first, news of an “at the market” offering of around 7.9 million shares in late November didn’t stop shares from rallying further. But markets are now starting to price in its impact. Given that JMIA trades at a price-to-sales ratio of 16.33, much of its potential is already priced-in. So splitting the pie more will further hurt the chance for long-term gains.

Bottom Line

I may be bullish on the e-commerce megatrend. But, that doesn’t mean every e-commerce stock is a worthwhile buy. The pivot from in-store to online is accelerating in developed markets. But, in Africa’s emerging economies, that doesn’t appear to be the case yet.

However, some investors have chosen to ignore the risks with Jumia. Instead, buying on scant analysis, they’ve bid the stock up to unsustainable levels. In recent weeks, this speculation has started to cool. With JMIA’s aforementioned issues, expect this to continue.

Shares may not fall back completely to prior price levels. But the risk outweighs the reward here for now. It isn’t worth to dive in at today’s prices.

Bottom line? JMIA stock is a “story” to avoid.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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