Last year, I visited China and I was struck at how much major cities like Shanghai have rapidly modernized. But nowadays, the world’s second-biggest economy has been forwarding its own innovations. One is a relatively underappreciated company called Luckin Coffee (NASDAQ:LK). A homegrown rival to global juggernaut Starbucks (NASDAQ:SBUX), LK stock has soared since its initial public offering in May 2019.
As you might imagine, I’m long-term bullish on the organization. But what might surprise some readers is that I’m not bothered by the nearer-term challenges. Of course, I’m referring to the coronavirus from China. While we’ve seen some sharp volatility in LK stock from last month’s highs, I regard any ensuing corrections as buying opportunities.
LK Stock Offers a Contrarian Discount
Browse the blogosphere long enough and you’ll come across doom-and-gloom prognostications. Even some mainstream sources are hinting at a dire outcome. But as I’ve said before, history tends to rhyme, if not outright repeat. Eventually, Chinese and international health authorities will assert control over the outbreak.
Generally, that’s not where sentiment is right now, which explains the sharp drop in LK stock since the second half of January. Yet patient investors should regard this circumstance as a discount. Years from now, you’ll thank me for pushing the bullish thesis.
Even before the coronavirus outbreak occurred, one of the most compelling arguments for Luckin was its underlying business model. Contrary to Starbucks, Luckin’s emphasis has never been about large physical footprints for customers to lounge about. Instead, Luckin focuses on smaller stores, often integrated into corporate buildings and college campuses. Here, the purpose is pickup orders: Get your coffee and leave!
Coincidentally, this distinctive business model plays almost perfectly into the coronavirus outbreak. I highly doubt that during a health crisis, our everyday cravings go away. More to the point, millions upon millions of Chinese professionals have to make a living. While they’re out grinding away the hours, they might as well pick up a cup of joe.
And that’s all they’re doing — getting their coffee and heading off to their next destination. Neither the customers nor the workers want unnecessary interaction. And that favors Luckin but not so much SBUX.
Further, Luckin is taking its small footprint model to its logical conclusion: smart unmanned vending machines. By the end of last year, the company reported 4,507 self-operating stores. Again, this was a great business choice for fast-paced China without the coronavirus. With it, it’s a vital mitigating factor.
Behavioral Shift Might Benefit Luckin
As you know, it wasn’t until relatively recently that China emerged as a legitimate superpower. But that also means that for many decades, its citizens were deprived of many cultural experiences that the West takes for granted.
Thus, mundane acts for us Americans — such as buying coffee at Starbucks or eating out at McDonald’s (NYSE:MCD) — are what the Chinese regard as status symbols. Particularly, China’s millennials and the nation’s burgeoning middle class want to show off and flex their financial muscles.
But today, that thought process has all but died. The immediate concern is to not get sick. And prancing around in high-density metropolitan areas is simply not in the cards. Again, the emphasis is on the product and how quickly you can get it, not on the experience.
This might turn a lot of new customers onto Luckin, especially its unmanned stores. In a strange way, the coronavirus isn’t just creating a discounted opportunity in LK stock. It’s also one of the main, albeit temporary reasons to actively buy shares.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.