When the going gets tough, replacing the top-level personnel can turn things around. That idea worked pretty well as General Electric (NYSE:GE) CEO Larry Culp helped his company stage a turnaround. Could this strategy work for China’s embattled Luckin Coffee (OTCMKTS:LKNCY), and should Luckin stock holders expect higher share prices?
![A Luckin (LKNCY) coffee cup on a table in a Luckin shop with the logo on the wall behind.](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
A month ago, I reported on the cavalcade of scandals that hit Luckin in 2020. I practically pleaded with investors to stay as far away from Luckin stock as possible. As we’ll discuss momentarily, my bearish call was correct.
Should some new faces at the corporate level provide hope for long-struggling Luckin shareholders? I’d like to offer some form of encouragement, but I feel a duty to call things as I see them. And unfortunately, I don’t see a turnaround in fortune happening anytime soon.
A Closer Look at Luckin Stock
I made my bearish call on Luckin stock on July 7, much to the chagrin of the bulls. Luckin fans on social media disagreed with my negative slant, and that’s perfectly fine as I encourage debate and opposing views.
At that time, and still today, there’s a spike in the popularity of what I call scandal stocks. These are like better-known bankruptcy stocks except the focus is on companies in public-relations debacles.
I warned traders to keep their distance from scandal-plagued Luckin and to expect the company’s stock to decline. Let’s look at the scorecard. Luckin shares were trading at $3.31 on July 7. Precisely one month later, at the close of Aug. 7, the stock was priced at $2.12.
The Corporate Face-Lift Begins
No reasonable person wants to see investors lose money. I hope that I’m wrong in suggesting that further declines are coming for Luckin stock.
Perhaps some changes at the corporate level can infuse new life into this scandal stock. Luckin’s shakeup began in earnest back in May when the company fired chief executive Jenny Zhiya Qian and COO Jian Liu.
During that tumultuous time, Luckin named Jinyi Guo the acting CEO and added Wenbao Cao and Gang Wu to the board. All of this took place amid a worrisome backdrop of alleged fabricated financial data and the threat of delisting from the Nasdaq.
And indeed, that delisting came to pass as Luckin stock was relegated to the over-the-counter (OTC) market. The assessment of Quo Vadis Capital President and analyst John Zolidis was not atypical. He assigned the shares a “sell” rating along with some harsh words of warning:
“We continue to see the most likely outcome as a complete wipeout for equity holders… Leaving aside the fraud, the figures that are available suggest that Luckin Coffee never had a viable business model… The company grew too fast and acquired customers via promotional offers, without ever proving the economics.”
New Faces, Same Company
It might be hard to keep track of everything that’s happened, so here’s a recap of the other high-level personnel changes at Luckin. Board chairman and company co-founder Charles Zhengyao Lu was ousted. He was replaced by new Chairman and CEO Jinyi Guo.
Then, earlier this month, Luckin received resignations from board members Jie Yang and Ying Zeng. Thus, it appears that Luckin will finally have a fresh lineup at the executive level.
Yet, none of this negates what Zolidis stated several months ago. There’s a remote possibility the stench of fraud will subside with new board members and the passage of time.
But what investors need now, more than deep corporate-level restructuring, are strong sales and robust revenue. They need honest numbers that indicate a fiscally healthy and viable enterprise.
That hasn’t come to pass yet. Until it does, the corporate face-lift is little more than a superficial change at a deeply troubled company.
The Bottom Line
To be frank, holding Luckin stock now is reckless. Don’t be enticed by the corporate-level shakeup. It will take much deeper changes to make Luckin a viable business worthy of your investment capital.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.