Why LK Stock Is the Houston Astros of Wall Street

When I first read about how Luckin Coffee (NASDAQ:LK) fabricated much of its reported 2019 sales, I said some words that cannot be repeated on any public or professional forum. But to give you an idea, it involved a deity, an activity, and a waste product – use your imagination. Under no circumstances are these actions anywhere close to justifiable. But for LK stock, this transgression couldn’t have come at a worse time.

LK stock

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For me, Luckin draws parallels with another disgusting scandal, this time in the world of sports. As you know, the Houston Astros cheated their way to a World Series. Though I have no skin in the game – go Padres! – I understand why the baseball community feels outraged. As America’s pastime, a certain obligation exists to play this game honorably; hence, the backlash against the Astros. Soon, LK stock will feel the wrath of both regulators and the investor community.

And don’t get into the contrarian mindset here. We saw that play out with some hardcore Astros faithful, swaying no one with any sense of morals. For instance, I’ve heard the excuse that had the shoe been on the other foot, any team would have done the same.

That could be. However, the point is, you cheated.

Additionally, we all listened to the ridiculous excuse that the Astros won it on the field. After all, electronic sign stealing schemes doesn’t automatically allow you to hit home runs.

That’s true – no matter what, you must still execute. But the point is, you cheated.

In fact, the Astros can say whatever they want; bottom line, they’re all cheaters. And that’s how I feel about LK stock.

LK Stock Has No Redeeming Value

Although it might seem strange to compare a publicly traded company to a baseball team, we may see a similar debate play out on Wall Street.

For instance, a speculator may argue that while Luckin may have lied about their sales, they didn’t lie about their physical footprint. As Matt McCall pointed out in his article about LK stock prior to the scandal going public, China is a country reaching 1.4 billion people. That’s why Starbucks (NASDAQ:SBUX) began opening hundreds of stores there to capitalize on the opportunity.

But Luckin decided to go gangbusters on its home turf, ironically enough. Out of nowhere, Luckin became China’s largest coffee chain. From startup to Starbucks killer, Luckin had quite a dramatic turnaround, just like the Houston Astros. Furthermore, they both can claim that they “won it on the field.”

Except for one problem: they both cheated or, in Luckin’s case, lied.

In reality, Luckin fabricated $310 million worth of transactions. This represents nearly half of net revenue between the second quarter to Q4 of last year.

However, the ruse also substantially inflated certain costs and expenses, according to the Wall Street Journal. Theoretically, then, the gap between the company’s real earnings potential versus its fabricated one may be relatively or acceptably close.

This logic reminds me of the Astros players saying that they still worked hard and therefore, “deserved” their championship. Put another way, their cheating wasn’t so bad because they still grinded like everyone else.

I don’t doubt it. But again, they cheated. For LK stock, this is a crippling deception.

Honestly, it doesn’t matter that both revenue and costs were inflated. The point is, Luckin lied about the viability of its growth narrative.

Isn’t LK a growth stock?

About Luckin Time for a Reckoning

At the top, I mentioned that the controversy surround LK stock couldn’t have come at a worse time for the underlying organization. Right now, China is public enemy number one.

First, President Donald Trump is right about one thing – the coronavirus originated from China. Another indisputable fact is that American medical and scientific experts offered assistance to the beleaguered nation during their crisis. However, China ignored these overtures for weeks.

Prior to the pandemic, the U.S. and China engaged in a bitter trade war. But let’s not forget what started the conflict, which was Chinese corporate espionage. In the past several years, the communist state has not conducted business in a transparent manner.

Now, we have an understanding why: Beijing has a culture of cheating.

To be fair, the U.S. bears great responsibility for the pain that China has caused American workers and families. Somebody sold us out to the red menace, and it wasn’t suburban Joe just trying to make a living.

But in this heightened political environment, I don’t see LK stock getting off lightly. Perhaps as CNBC suggested, shares may have a delisting risk. I can tell you one thing for certain: if that happened, nobody would Luckin care.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2020/04/why-lk-stock-is-the-houston-astros-of-wall-street/.

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