Luckin Tanks as it Resumes Trading, Business Under Question

A cold and bitter end to a once-hot coffee stock, Luckin will be lucky if its assets get bought by a rival.
Capitalwatch StaffMay 21,2020,06:55

Luckin Coffee stock (Nasdaq: LK) is on the move again, but not in the right direction. After 2.2 billion yuan in uncovered fraud, LK shares were on hold since April 7. Today, the Chinese company is trading again, at $3 per American depositary share, or 32% down – and that’s an improvement from the $2.40 at which it opened.

Now, the coffee chain will start closing some stores it fought so furiously to open in its goal to outnumber Starbucks (Nasdaq: SBUX) in China, as reported by MarketWatch citing John Zolidis, president of Quo Vadis Capital.

Zolidis also told MarketWatch that investors may only hope that Luckin’s assets be acquired by someone like Starbucks before their liquidation. He said Luckin “never had a viable business model," as “The company grew too fast and acquired customers via promotional offers, without ever proving the economics.”

Luckin’s demise has been a sudden one for many an analyst. Since January, LK shares tanked from trading above $50 to under $3 – and the consensus for the stock has been a “buy” with a media target of $36.60 and a high estimate of $53.20 per ADS.

A month ago, Thinknum reported Luckin’s store locator showed it had 6,500 outlets in China – at about the same time that its chairman Charles Zhengyao Lu and then-CEO Jenny Zhiya Qian had to hand over shares in the company to lenders after a default on a $518 million margin loan. Now, Luckin is seeing mounting lawyer expenses as it faces a class action suit in the United States in addition to losing access to investor capital.

On Tuesday, Luckin said it will fight the decision from the Nasdaq Capital Market to delist the debt-ridden and fraud-troubled company. This morning, more than a month since its shares were frozen by the stock exchange during an investigation for financial misconduct, LK stock saw heavy trading volume of 86.5 million.

For investors in Luckin, if you bought shares before April, this might be a good time to consider joining the class action suit. For those of you who shorted the stock after the Muddy Waters report, congrats on covering. For those investors who want to try their luck, wait until the stock goes to zero and buy to see what happens, though survival is looking less and less likely with every trade.