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Luckin Coffee Is A Ticking Time Bomb That Might Explode Later This Month

Jun. 08, 2020 11:39 AM ETLuckin Coffee Inc. (LKNCY)81 Comments


  • The market performance of Luckin Coffee since May 20 has baffled many investors and there's optimism regarding the future of the company.
  • The worst, however, is yet to come and many negative developments can be expected toward the end of this month.
  • Investors are in for an unpleasant surprise when the stock begins trading on the OTC market.
  • If an investor wants to bet on the future of the company even after all this, the best course of action is to wait until the company is delisted.

Luckin Coffee stock is setting up for another drastic dropSource

Last time I wrote about Luckin Coffee Inc. (LK), I attracted a lot of criticism for suggesting investors who bought the stock at recent highs of around $50 should wait it out and see what happens. At the time of publishing the first article, Luckin Coffee stock had already plummeted to around $4, and I thought shares would bounce back because of its liquidity position and the revival of the Chinese economy. The store count of around 4,500, I noted, is not fictitious. The trading ban on the stock was lifted on May 20, and after falling dramatically, shares are now trading above $6 in the pre-market session on June 8 at the time of writing this article. Shares, indeed, have recovered faster than many investors thought it would, if at all. My first piece on Luckin Coffee was targeted at investors who bought the stock at recent highs. On the contrary, this article focuses on investors who are considering investing in this troubled company and the ones who picked up shares from the historic lows seen during the last week of May. Even though the momentum is very strong, I consider Luckin as a ticking time bomb that will explode toward the end of this month. The prudent decision, therefore, would be to distance from Luckin Coffee by booking the gains and never looking back.

The timeline of the delisting process

The company, in a press release dated May 19, announced receiving written notice from Nasdaq confirming the decision the index committee has reached to delist its shares. A quick glance at the list of noncompliant companies published every day by Nasdaq on its website reveals two reasons behind this decision.

  1. Failure to disclose material information in a timely manner.
  2. Public interest concerns (as a result of the accounting

This article was written by

Dilantha De Silva profile picture
Leader of Beat Billions
Uncover the untapped potential of small-cap stocks
I am Dilantha De Silva, an investment analyst with 8+ years in the investment management industry. Before becoming an independent publisher, I worked as a buy-side analyst in a leading boutique wealth management firm in Dubai where I dedicated my time to identifying U.S. small-cap stocks for the funds managed by the firm. I am the founder of Beat Billions, a premium Investing Group on Seeking Alpha focused on identifying alpha-generating thinly followed stocks in the market. I am a CFA Level III candidate and an Associate Member of the Chartered Institute for Securities and Investment (UK).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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