Investors in Jumia Technologies (NYSE: JMIA) have a lot to celebrate as stocks have climbed 970% in the past year. The Africa-based e-commerce company has benefited from a shift to “pandemic stocks” and small-cap names among retail investors.

Yet the company is not without its skeptics. The bearish argument is that the explosive growth in the company’s stocks has gone “too far, too fast” and has exceeded its current fundamentals. However, long-term investors have little to fear. If anything, Jumia might be undervalued given the huge opportunity it has, and if you’ve paid close attention to it, you can see that the biggest risk to growing the business is. slowly fades.

It is still “infrastructure week” in Africa

The biggest perceived risk to Jumia’s business model has always been the continent’s underdeveloped infrastructure, both physical – in the form of roads and large-scale distribution centers – and digital. The digital divide is particularly acute as the continent is known as the home of the “last billion,” a phrase that describes those without an internet connection. But that is changing rapidly. Unlike the United States, where the expression “infrastructure week” has become a bit of a common gag, it’s every week for Africa’s digital ambitions.

A recent article from Financial Time highlights how quickly the continent is accelerating its digital construction. In March 2020, the continent’s largest internet exchange announced that it had peaked in traffic speed of one terabyte per second, a feat that took nearly a decade to accomplish. But less than a year later, that figure is now 1.5 terabytes per second.

This is just the start as big tech companies invest in bringing Africans online. Alphabet and Facebook are both involved in efforts to build submarine internet cables to connect the continent with the efforts of the former expected to end this year and the latter by 2024. Facebook’s consortium is the most ambitious effort , connecting 23 countries with a cable designed to provide speeds of up to 180 terabytes per second.

Valuations are bleeding … and it’s ok

At this point, it is impossible to make an argument based on the evaluation for Jumia, much like it was for Amazon for many years. Currently, the company is not profitable, so it does not have a price / earnings ratio. Its 25x forward price / sales ratio puts it in nosebleed territory compared to traditional businesses and even others. mega cap e-commerce companies like Amazon and Ali Baba. That said, when you compare it to ecommerce stocks with smaller market caps in developing markets like Free Mercado (Latin America) and Limited sea (Southeast Asia), the valuation seems more reasonable.

Data by YCharts. TTM = 12 rolling months. Table by author.

The other valuation-based argument is that Jumia is worse off than other ecommerce stocks because it is a growth stock with no growth. In the first nine months of 2020, the company saw a 12% year-over-year decline in revenue.

However, this was due to an intentional transition from the status of traditional retailer with inventory and sales to more than one platform business that makes money by connecting buyers and sellers, generating commissions and fulfillment fees. In the long run, this change will drive growth with lighter assets, higher margins, and a business that’s easier to scale. Expect revenue growth to accelerate once the traditional business is completely phased out.

Despite the huge increase in the share price, remember that Jumia is just a $ 6 billion company poised for a long growth trajectory as Africa grows digitally and as more and more consumers in this market are discovering the convenience of e-commerce. Mobile industry authority GMSA expects African internet users to increase by around 70% by mid-decade and the continent to have nearly 30 million 5G connections, a dramatic increase from total of about zero from last year. The future of Jumia is bright and long-term investors have not missed the boat.