Luckin Coffee (OTCMKTS:LKNCY) — sometimes known as the Chinese coffee chain equivalent of Starbucks (NASDAQ:SBUX) — has recently become the poster child for (alleged) fraud and deceit. Long-term Luckin Coffee stock holders have now suffered numerous setbacks as the company’s woes have become painfully public.
It’s funny because — when times were good — it seemed like everybody loved Luckin. Some even called it the “Starbucks Slayer.”
As a result, traders bought Luckin Coffee stock at higher and higher prices, blissfully unaware of the problems ahead. Now, accusations of fraud, a corporate-level housecleaning and a Nasdaq delisting brought havoc and misery to the bulls.
Today, Luckin has been left to pick up the pieces and repair its reputation so that it can resume selling overpriced coffee. But is it at all possible that Luckin is underappreciated? Could the coffee company be a turnaround story in the making?
A Closer Look at Luckin Coffee Stock
Believe it or not, Luckin Coffee stock’s delisting might have been the best thing that could have happened to it from a shareholder’s perspective.
The events stemming from the financial misconduct investigation caused the stock to decline by 89% in a three-month period. Moreover — upon the announcement that the company would be delisted from the Nasdaq — the share price plunged 32% in premarket trading.
As I recall, there was a period of time in which people couldn’t trade Luckin Coffee stock at all. Then the stock reappeared on the over-the-counter market as LKNCY.
Since then, though, Luckin Coffee stock actually hasn’t done too badly. Sure, it’s fraught with volatility, but that’s to be expected in the over-the-counter Wild West.
Every time it dips, Luckin always seems to come back up to the $4.50 level. Essentially, the stock’s been surprisingly steady and resilient. Right now, the stock trades at around $4.90. So — in its post-fraud, post-delisting second act — maybe there’s hope on the horizon for the company.
Loving the Hate
Upon the delisting announcement of Luckin Coffee stock, everyone and their uncle came out of the woodwork to criticize and demonize the scandal-plagued chain.
In fact, it was rather amusing to see the “hindsight warriors” strut their condemnations after the fact. Typical of the sentiment at that time was Anne Stevenson-Yang, research director at J Capital Research:
“It’s a great morality tale. It seems to me that those of us who spent time in China could see from very early on that Luckin was inflating its numbers.”
This wasn’t just bearishness directed toward the company — it was outright disgust. Even today, there’s little love on Wall Street for Luckin Coffee. So, if you’re a true contrarian who relishes the thought of buying unloved stocks, then this article is a double-dare to take a long position.
A Bridge to China
Jokes aside, a double-dare is not the only reason you should consider buying Luckin. Not long ago, InvestorPlace contributor Josh Enomoto opened my mind to a bullish angle on the stock.
The premise is this — with Joe Biden as the apparent winner of the U.S. presidential election, Luckin Coffee stock could actually become a play on the election and its aftermath. How?
Throughout Donald Trump’s presidency, tensions escalated between the U.S. and China. As a result, traders on Wall Street were hesitant to reward Chinese companies with higher American share prices.
It’s possible, then, that U.S.-Chinese tension will cool with a new administration, lifting the market barriers as well. Soon enough, American traders could take a shine to Chinese companies. Then folks looking for the next Starbucks might look to Luckin Coffee stock.
Of course, it’s entirely understandable if you don’t want to take a large position in Luckin Coffee stock.
However, bona fide contrarians might consider taking a small stake. For all we know, Luckin Coffee — though despised today — could become a Wall Street darling in 2021.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
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