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The market value of Jumia Technologies (JMIA), a pan-African e-commerce company listed on the New York Stock Exchange, could increase tenfold or more in the next few years, according to hedge fund manager Josh Koren.

Jumia, often referred to as the "Amazon of Africa," operates e-commerce platforms in 10 African countries.

The stock is up more than 270% so far this year, but Koren, portfolio manager and chief investment officer at Musketeer Capital, thinks it has plenty of room to run.

“This is the investment that I’m most excited about. I think it’s the best idea that I’ve found in my entire career,” Koren told CNBC Pro, adding that the stock is currently his fund’s “largest” holding.

Jumia has experienced wild volatility since its initial public offering in 2019.

After launching at $14.50 a share, the stock surged to an all-time high of about $62 in 2021, according to FactSet. However, the pandemic-driven enthusiasm for e-commerce stocks was relatively short-lived.

Concerns about the company's path to profitability and a sell-off in growth and technology stocks caused Jumia's stock price to fall sharply. As of October 2023, the stock fell below $3, down 95% from its peak.

However, it has now rebounded more than 300% and was trading around $13 on Monday. The company has a new management team and its latest earnings report showed improvement.

Koren pointed to Jumia’s recent quarterly results as proof of the company’s potential. Jumia reported a sharp reduction in its losses and positive cash flow from operations for the first time.

“At this point in the company’s life cycle, one would expect them to spend money and lose money. Instead, they are doing the opposite,” Koren noted. “Cash utilization going forward is much better and margins are improving.”

Despite the recent surge in its share price, Jumia's market capitalization is still just over $1 billion, a valuation that Koren believes significantly undervalues ​​the company given its growth potential and strategic position in the African market.

“This company is worth $1.2 billion right now. That’s incredible for what it’s actually worth,” said Koren, who expects Jumia to reach a $10 billion valuation in two to three years and possibly $50 billion in a decade.

“There’s no reason why this company wouldn’t be like a $3 billion to $5 billion company, because the rest of the world’s e-commerce market is worth at least $50 billion to $60 billion, maybe more,” he added. “The U.S. has trillion-dollar e-commerce companies. China has hundreds of billions. Southeast Asia has $100 billion. Africa doesn’t have any.”

However, investing in Jumia is not without risks.

In addition to huge stock price fluctuations, the company has yet to achieve sustained profitability, and its sales in US dollars will decline in 2023 compared to 2022.

Koren attributed this to intentional streamlining of the business and currency headwinds, which he believes are now turning into tailwinds.

Jumia also faces challenges that are unique to African businesses, including infrastructure limitations and currency fluctuations in certain markets. Koren sees these challenges as opportunities, noting that increased investment in African internet infrastructure by big tech companies and Jumia’s partnership with Elon Musk’s Starlink are both positive developments.

“All the money is flowing into this market to improve the quality of the internet, the infrastructure and the technology backbone,” Koren said. “This is the best internet platform to directly benefit from this trend.”

Earlier this month, analysts at investment bank Benchmark expressed a similar view, giving Jumia a buy rating and a $14 price target.

“As Africa’s leading e-commerce platform, JMIA is well positioned to benefit from the demographic shift that will boost e-commerce growth in the region for years and decades,” Benchmark analysts led by Fawne Jiang said in a July 9 note to clients.

This article comes from: Financial World