Luckin Coffee (OTCMKTS: LKNCY) is now listed on the over-the-counter markets with the warning “This company has posted limited financial disclosure through the OTC Disclosure & News Service or is late in their filing obligations with the SEC.”
More information can be found on the Luckin Coffee company website.
Luckin Coffee considers itself to be the pioneer of a technology-driven new retail model to provide coffee, juices, lunch boxes, and light meals. Through their mobile app and presence on other third-party platforms, they offer customers a 100% cashier-less environment. Their store network includes pick-up stores, relax stores, and delivery kitchens. They use AI (artificial intelligence) to analyze the huge volume of data they generate from our operations. Luckin Coffee was founded in 2017 and is based in Xiamen, China. The stock is an ADR.
In January of this year, Lukin Coffee was one of the hottest names out there. It reached a high of $51.38. At that time it was considered China’s answer to Starbucks. China, with a current population of 1.39 billion people, is a huge market for growth and expansion. On April 7 the Nasdaq halted trading of LK. Trading did not resume until May 21. On May 26 LK dropped to a low $1.33. Since hitting bottom, shares rallied to $6.79. They have since meandered down to the $4 range as of today (6/16/20). The reason for the fall from grace was that in 2019 the chief operating officer fabricated sales by an amount of about $310 million (about 40% of LK’s annual sales).
LK received a notice from NASDAQ on May 15 said the company will be delisted due to “public interest concerns as raised by the fabricated transactions disclosed by the Company” and “past failure to publicly disclose material information, citing a business model through which the previously disclosed fabricated transactions were executed”. LK has filed an appeal to a NASDAQ hearings panel in order to remain on the stock exchange until the outcome of the appeal.
On June 24, 2020, the LK notified the Listing Qualifications Staff at NASDAQ that the Company decided to withdraw its request for a hearing and not seek to stay on the NASDAQ. As a result, NASDAQ notified LK that the Company’s shares will be suspended at the open of business on June 29, 2020.
Why Luckin Coffee Is a Bad Investment
• LK has been delisted from the NASDAQ effective June 29, 2020. Shares could trade on the over-the-counter markets, most likely with a big drop in price or the company could go bankrupt.
• With a fraudulent past, will investors believe financial statements and guidance again? Even though the perpetrators and enablers of the scam were fired or resigned, LK would have a challenge regaining investor’s and analyst’s trust.
• There are, and may be more, law suits against the company.
Why Luckin Coffee May Be a Good Investment
I am sure some people would leave this blank, but there is the possibility of LK surviving.
• LK claims it has over 4,500 locations in China. In 2019 Starbucks had 4123 stores open in China. They are keeping up with the competition in the number of outlets.
• There is the possibility they will be purchased by a larger company.
• LK started the cleanup of it company by terminating its chief executive and chief operating officer.
• LK has hired the investment banking company, Houlihan Lokey, which specializes in working with distressed companies.