Chinese stocks are getting absolutely hammered right now. However, investors in Luckin Coffee (OTCMKTS:LKNCY) certainly aren’t feeling the pain lately. In fact, today, LKNCY stock is up almost 11% as of the time of writing.
Indeed, for the “Starbucks of China,” previous accounting issues cast a dark shadow over this stock. The company’s delisting from the Nasdaq, bankruptcy proceedings and a large fine paid to the Securities and Exchange Commission (SEC) didn’t help the company’s image.
For many investors, the risk wasn’t worth the reward with this stock.
However, today’s double-digit percentage move in LKNCY stock suggests some believe the worst is over. Indeed, this is a stock that has been rebounding nicely of late.
Let’s dive into why this might be the case.
Why LKNCY Stock Is Once Again On the Move
One of the key catalysts for Luckin Coffee has been the company’s recent financial restatements. Indeed, the market was viewing the potential disaster that could have unfolded as they should have. A ton of risk was priced into this stock. In fact, shares of Luckin Coffee were decimated last year on the aforementioned accounting issues the company faced.
However, on June 30, the company’s announced restatements breathed life back into this stock. Why? Well, the numbers actually weren’t that bad.
The company announced it had completed its internal investigation and found only $328 million in inflated revenue for 2019. After the adjustments for Q4 2019, Luckin still posted a year-over-year revenue growth rate of more than 100%. That’s not bad, and investors were certainly prepared for worse.
Additionally, it appears with the Nasdaq delisting behind the company, as well as its accounting fiasco, investors are finally looking forward to the future. The company has paid its $180 million in fines to the SEC. Accordingly, investors seem to feel that the bad news this company has seen is largely behind it.
Whether that’s true or not remains to be seen. However, this is a speculative pick for many long-term investors bullish on China. Picking up shares when they’re out of favor is the goal of many long-term investors. Given how beaten up Luckin has been recently, perhaps this strategy will pay off. Only time will tell.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
