Consider Luckin Coffee a Lesson, Not an Investment

[Hamartia Antidote]

(Note Luckin Coffee declared Bankruptcy a month ago)

Consider Luckin Coffee a Lesson, Not an Investment

We're living in a time when bankruptcy stocks sometimes move much higher. This could happen with Luckin stock, but don't bet on it.

investorplace.com

It seems so long ago, but there was a point in time when Luckin Coffee (OTCMKTS:LKNCY) was hailed as the Chinese coffee chain equivalent of Starbucks (NASDAQ:SBUX). And with that, Luckin stock holders were posting pretty decent gains for a while.

In hindsight, it might seem laughable that Zhejiang University of Finance and Economics researchers claimed, “As Luckin Coffee enters the international market, it has become a symbol of globalization, showing China’s coffee brand.”

Of course, it’s easy to mock past predictions. Before all of the scandals and scrutiny, the sky was the limit for Luckin stock. At least, that’s the way it seemed.

A cascade of problems, unfortunately, has culminated in the worst possible outcome for Luckin stock holders. Yet, some folks would dare to buy the shares in light of this. Is this sensible, or self-sabotage?

A Baseless Bounce in Luckin Stock
In the middle of the day on Feb. 8, Luckin stock was absolutely flying. At one point, it was up around 23% and seemed to be approaching $8.70 per share.

This price action should signal good news for the company, right? That would make sense, but we’re living in a time when short-term stock price moves aren’t always driven by reason.

On the prior trading day, Luckin stock had nearly been cut by more than 40%. The share price plunged from $12.82 at the close of Feb. 4 to $7.05 at the Feb. 5 close. On Feb. 10, Luckin stock closed at $7.69.

Not to be morbid (I didn’t make up this term), but the Feb. 8 bounce is likely nothing more than a dead-cat bounce. The fact is, some folks feel the need to buy every dip, even if there’s no positive catalyst to justify the purchase.



A Cascade of Problems
I will now attempt to sum up the whirlwind of significant events regarding Luckin Coffee over the past year. So, here are the bullet points.

• In early April 2020, it was revealed that some of the people at Luckin Coffee had fabricated transactions and inflated the company’s sales figures. Shockingly, Luckin’s internal investigation uncovered 2.2 billion yuan ($307.3 million at the time) worth of fake sales.
• On June 26, the Nasdaq Exchange announced that it would delist Luckin stock three days later. Not long afterwards, traders found the stock on the over-the-counter market instead of on the Nasdaq.
• In July, board chairman and company co-founder Charles Zhengyao Lu was ousted. He was replaced by new Chairman and CEO Jinyi Guo.
• Then, in August, Luckin received resignations from board members Jie Yang and Ying Zeng. Thus, it appeared that Luckin would at least have a fresh lineup at the executive level.
• After all of that, investors awaited the Chinese government’s final judgment against Luckin. Reportedly, Chinese regulators decided to fine Luckin and a number of connected firms a total of 61 million yuan, which equates to $9.45 million today.
• Moreover, Luckin Coffee paid a fine of $190 million to the Securities & Exchange Commission for its revenue overstatements.

‘B’ Is for Bankruptcy, Not Benefit
In May and then again in August, I practically begged people not to buy Luckin stock. I had a strong sense that a certain event was coming, which has indeed come to pass.

In what ought to be the final act of this Shakespearean tragedy, Luckin Coffee officially filed for Chapter 15 bankruptcy protection on Feb. 5.

If you can believe it, the company’s press release somehow managed to spin this event in terms of stakeholder benefit:

“The Company is negotiating with its stakeholders regarding the restructuring of the Company’s financial obligations, to strengthen the Company’s balance sheet and enable it to emerge from the Cayman Proceeding as a going concern, for the benefit of all stakeholders.”

I know it’s trendy to trade “bankruptcy stocks,” but I wouldn’t touch this one with a 10-foot pole.

When companies spiral into bankruptcy proceedings, the retail shareholders almost always get the short end of the stick.

In all likelihood, the insiders and institutional-grade investors will get first dibs, while the retail traders will be the last ones to have access to the company’s dwindling value.

The Bottom Line on Luckin Stock
Maybe you’re thinking about buying shares of Luckin based on the “greater fool theory,” which states that you can make money from a bad stock because someone else will inevitably buy it at a higher price.

I say that’s a fool’s game and it’s not worth playing. Stick to companies that are in growth mode, not bankruptcy mode. There are many great stocks to choose from, and Luckin stock’s not one of them.

 

[F-22Raptor]

(Note Luckin Coffee declared Bankruptcy a month ago)

Consider Luckin Coffee a Lesson, Not an Investment

We're living in a time when bankruptcy stocks sometimes move much higher. This could happen with Luckin stock, but don't bet on it.

investorplace.com

It seems so long ago, but there was a point in time when Luckin Coffee (OTCMKTS:LKNCY) was hailed as the Chinese coffee chain equivalent of Starbucks (NASDAQ:SBUX). And with that, Luckin stock holders were posting pretty decent gains for a while.

In hindsight, it might seem laughable that Zhejiang University of Finance and Economics researchers claimed, “As Luckin Coffee enters the international market, it has become a symbol of globalization, showing China’s coffee brand.”

Of course, it’s easy to mock past predictions. Before all of the scandals and scrutiny, the sky was the limit for Luckin stock. At least, that’s the way it seemed.

A cascade of problems, unfortunately, has culminated in the worst possible outcome for Luckin stock holders. Yet, some folks would dare to buy the shares in light of this. Is this sensible, or self-sabotage?

A Baseless Bounce in Luckin Stock
In the middle of the day on Feb. 8, Luckin stock was absolutely flying. At one point, it was up around 23% and seemed to be approaching $8.70 per share.

This price action should signal good news for the company, right? That would make sense, but we’re living in a time when short-term stock price moves aren’t always driven by reason.

On the prior trading day, Luckin stock had nearly been cut by more than 40%. The share price plunged from $12.82 at the close of Feb. 4 to $7.05 at the Feb. 5 close. On Feb. 10, Luckin stock closed at $7.69.

Not to be morbid (I didn’t make up this term), but the Feb. 8 bounce is likely nothing more than a dead-cat bounce. The fact is, some folks feel the need to buy every dip, even if there’s no positive catalyst to justify the purchase.



A Cascade of Problems
I will now attempt to sum up the whirlwind of significant events regarding Luckin Coffee over the past year. So, here are the bullet points.

• In early April 2020, it was revealed that some of the people at Luckin Coffee had fabricated transactions and inflated the company’s sales figures. Shockingly, Luckin’s internal investigation uncovered 2.2 billion yuan ($307.3 million at the time) worth of fake sales.
• On June 26, the Nasdaq Exchange announced that it would delist Luckin stock three days later. Not long afterwards, traders found the stock on the over-the-counter market instead of on the Nasdaq.
• In July, board chairman and company co-founder Charles Zhengyao Lu was ousted. He was replaced by new Chairman and CEO Jinyi Guo.
• Then, in August, Luckin received resignations from board members Jie Yang and Ying Zeng. Thus, it appeared that Luckin would at least have a fresh lineup at the executive level.
• After all of that, investors awaited the Chinese government’s final judgment against Luckin. Reportedly, Chinese regulators decided to fine Luckin and a number of connected firms a total of 61 million yuan, which equates to $9.45 million today.
• Moreover, Luckin Coffee paid a fine of $190 million to the Securities & Exchange Commission for its revenue overstatements.

‘B’ Is for Bankruptcy, Not Benefit
In May and then again in August, I practically begged people not to buy Luckin stock. I had a strong sense that a certain event was coming, which has indeed come to pass.

In what ought to be the final act of this Shakespearean tragedy, Luckin Coffee officially filed for Chapter 15 bankruptcy protection on Feb. 5.

If you can believe it, the company’s press release somehow managed to spin this event in terms of stakeholder benefit:


I know it’s trendy to trade “bankruptcy stocks,” but I wouldn’t touch this one with a 10-foot pole.

When companies spiral into bankruptcy proceedings, the retail shareholders almost always get the short end of the stick.

In all likelihood, the insiders and institutional-grade investors will get first dibs, while the retail traders will be the last ones to have access to the company’s dwindling value.

The Bottom Line on Luckin Stock
Maybe you’re thinking about buying shares of Luckin based on the “greater fool theory,” which states that you can make money from a bad stock because someone else will inevitably buy it at a higher price.

I say that’s a fool’s game and it’s not worth playing. Stick to companies that are in growth mode, not bankruptcy mode. There are many great stocks to choose from, and Luckin stock’s not one of them.

So Luckin went bankrupt, weren’t the Chinese Brigade pumping Luckin just a few months ago? SMH

 

[Hamartia Antidote]

So Luckin went bankrupt, weren’t the Chinese Brigade pumping Luckin just a few months ago? SMH

They apparently are still open..but um not sure I'd trust the coffee to be the same quality.

No mention on Xinhua (they avoid reporting bad news) but China Daily has it.

Luckin Coffee files for bankruptcy

Luckin Coffee said on Friday it is seeking protection under Chapter 15 of the US Bankruptcy Code to facilitate the company's restructuring of its financial obligations.

www.chinadaily.com.cn

The Xiamen-headquartered company in December agreed to pay the US Securities and Commission a $180 million penalty to settle accounting fraud charges for "intentionally and materially" overstating its 2019 revenue and understating a net loss.

 

[letsrock]

(Note Luckin Coffee declared Bankruptcy a month ago)

Consider Luckin Coffee a Lesson, Not an Investment

We're living in a time when bankruptcy stocks sometimes move much higher. This could happen with Luckin stock, but don't bet on it.

investorplace.com

It seems so long ago, but there was a point in time when Luckin Coffee (OTCMKTS:LKNCY) was hailed as the Chinese coffee chain equivalent of Starbucks (NASDAQ:SBUX). And with that, Luckin stock holders were posting pretty decent gains for a while.

In hindsight, it might seem laughable that Zhejiang University of Finance and Economics researchers claimed, “As Luckin Coffee enters the international market, it has become a symbol of globalization, showing China’s coffee brand.”

Of course, it’s easy to mock past predictions. Before all of the scandals and scrutiny, the sky was the limit for Luckin stock. At least, that’s the way it seemed.

A cascade of problems, unfortunately, has culminated in the worst possible outcome for Luckin stock holders. Yet, some folks would dare to buy the shares in light of this. Is this sensible, or self-sabotage?

A Baseless Bounce in Luckin Stock
In the middle of the day on Feb. 8, Luckin stock was absolutely flying. At one point, it was up around 23% and seemed to be approaching $8.70 per share.

This price action should signal good news for the company, right? That would make sense, but we’re living in a time when short-term stock price moves aren’t always driven by reason.

On the prior trading day, Luckin stock had nearly been cut by more than 40%. The share price plunged from $12.82 at the close of Feb. 4 to $7.05 at the Feb. 5 close. On Feb. 10, Luckin stock closed at $7.69.

Not to be morbid (I didn’t make up this term), but the Feb. 8 bounce is likely nothing more than a dead-cat bounce. The fact is, some folks feel the need to buy every dip, even if there’s no positive catalyst to justify the purchase.



A Cascade of Problems
I will now attempt to sum up the whirlwind of significant events regarding Luckin Coffee over the past year. So, here are the bullet points.

• In early April 2020, it was revealed that some of the people at Luckin Coffee had fabricated transactions and inflated the company’s sales figures. Shockingly, Luckin’s internal investigation uncovered 2.2 billion yuan ($307.3 million at the time) worth of fake sales.
• On June 26, the Nasdaq Exchange announced that it would delist Luckin stock three days later. Not long afterwards, traders found the stock on the over-the-counter market instead of on the Nasdaq.
• In July, board chairman and company co-founder Charles Zhengyao Lu was ousted. He was replaced by new Chairman and CEO Jinyi Guo.
• Then, in August, Luckin received resignations from board members Jie Yang and Ying Zeng. Thus, it appeared that Luckin would at least have a fresh lineup at the executive level.
• After all of that, investors awaited the Chinese government’s final judgment against Luckin. Reportedly, Chinese regulators decided to fine Luckin and a number of connected firms a total of 61 million yuan, which equates to $9.45 million today.
• Moreover, Luckin Coffee paid a fine of $190 million to the Securities & Exchange Commission for its revenue overstatements.

‘B’ Is for Bankruptcy, Not Benefit
In May and then again in August, I practically begged people not to buy Luckin stock. I had a strong sense that a certain event was coming, which has indeed come to pass.

In what ought to be the final act of this Shakespearean tragedy, Luckin Coffee officially filed for Chapter 15 bankruptcy protection on Feb. 5.

If you can believe it, the company’s press release somehow managed to spin this event in terms of stakeholder benefit:


I know it’s trendy to trade “bankruptcy stocks,” but I wouldn’t touch this one with a 10-foot pole.

When companies spiral into bankruptcy proceedings, the retail shareholders almost always get the short end of the stick.

In all likelihood, the insiders and institutional-grade investors will get first dibs, while the retail traders will be the last ones to have access to the company’s dwindling value.

The Bottom Line on Luckin Stock
Maybe you’re thinking about buying shares of Luckin based on the “greater fool theory,” which states that you can make money from a bad stock because someone else will inevitably buy it at a higher price.

I say that’s a fool’s game and it’s not worth playing. Stick to companies that are in growth mode, not bankruptcy mode. There are many great stocks to choose from, and Luckin stock’s not one of them.

Rubbish article. I have seen this site just repeat the same theme on luckin. Fraud happened yes but so it did in many other companies. By simply repeating that and putting themselves on pedestal these guys are doing their readers a disservice and not informing them of what is actually happenning with luckin which is very positive based on redditt and youtube. Ofcourse chinese companies are generally bad in communicating so one has to piece togethr evidence theemselves.

 

[KurtisBrian]

China has so many completely AWESOME things. Why would they be in the coffee business? the Cha, noodles, foods. my mouth waters thinking of Chinese food.
Let the Ethiopians, South Americans (maybe even Italians and Greeks. Arabs might be really good at coffee too) do coffee. Ethiopian coffee, wow. Made me say, WTF was that other junky stuff I was drinking?
I am sad now. You all have so many wonderful things. I live in a no good place.

 

[Hamartia Antidote]

Rubbish article. I have seen this site just repeat the same theme on luckin.

You mean like others doing Boeing articles?

 

[letsrock]

You mean like others doing Boeing articles?

Dont know abut that. But investorplace has a duty to give best advice to its readers. People come there in trust with their money.

 

[Hamartia Antidote]

Dont know abut that. But investorplace has a duty to give best advice to its readers. People come there in trust with their money.

It was a penny stock that is now above $5 so people are tempted to buy. They aren't going to recommend a penny after it declared bankruptcy. That's a double danger.

 

[letsrock]

It was a penny stock that is now above $5 so people are tempted to buy. They aren't going to recommend a penny after it declared bankruptcy. That's a double danger.

View attachment 723314

I am not sure if you read them. Basically they repeat the same thing with a moral fervor. I mean every 10 days they publish an article trashing it on fraud (which they already acknowledged, paid fines etc). There is a moralizing or damning tone to it which i don't like (i take morals seriously by the way but not when they accepted and made amends to it then i forgive as one should) and which does not belong in investment paper.

 

[Nan Yang]

Sometimes its good to revisit some old thread. Fast forward Just 2 years ......

Luckin overtakes Starbucks in China sales for first time — thanks to ‘pseudo’ coffee​

In racing past Starbucks, Luckin has not only dethroned a foreign brand that’s been synonymous with coffee for more than two decades in China, it has also declared a new chapter of its business as it tries to move on from its scandal-riddled past.

Zhao Yuanyuan Published August 8, 2023

Oriental Image via Reuters Connect

China’s homegrown beverage chain Luckin Coffee has for the first time eclipsed global coffee juggernaut Starbucks in domestic sales, according to industry and corporate reports, a milestone propelled largely by its aggressive expansion in the past year and diversified offerings tailored to Chinese people who are averse to the bitter taste of traditional coffee.

From April to June 2023, the Xiamen-headquartered company earned 6.2 billion yuan ($862 million), marking a 88% jump compared with the same period a year ago, per Luckin’s quarterly revenue report released last week.

By contrast, for Starbucks, which reported its sales results around the same time, while its same-store sales — or sales at locations open at least a year — soared 51% year-over-year in the three months that ended on July 2, its net income for the period stood around 5.9 billion yuan ($820 million), marking the first time ever that the company has fallen second behind its local competitor in single-quarter earnings.

One pandemic, two tales​

During a conference with investors last week, Starbucks CEO Laxman Narasimhan said that the sales growth in China — the world’s second-biggest economy — was mainly powered by the government’s removal of COVID-zero policies in December, which allowed the company to reopen some of its locations and coffee drinkers to resume their morning routines as they returned to the office.

Last year, as a flurry of lockdowns continued to confine millions of Chinese people to their homes and forced businesses to remain shuttered, Starbucks sales plummeted in the country, with Shanghai, the company’s largest market, suffering the largest dip in earnings due to a two-month lockdown.

But the pandemic painted an entirely different picture for Luckin Coffee. Because its business model depends heavily on takeout and delivery, with most of its stores offering limited seating, Luckin managed to keep its sales largely unaffected despite challenging COVID policies. As a result, Luckin reported an annual sale of 13.2 billion yuan ($1.84 billion) and achieved its first-ever full-year profitability in 2022.

Aside from sales numbers, Luckin has also surpassed Starbucks in store count in China. In June, after opening 1,137 mainland China locations in the first quarter of this year, Luckin reached its 10,000-store milestone with its first flagship outlet in Xiamen. In comparison, Starbucks currently operates around 6,000 locations in over 230 Chinese cities.

“Because Luckin’s store formats are so different from your typical sit-down Starbucks, sure they could easily go for a lot more stores,” Rui Ma, the chief operating officer at AlphaWatch AI and founder of Tech Buzz China, explained to The China Project.

A Nasdaq comeback story for Luckin?​

In racing past Starbucks, Luckin has not only dethroned a foreign brand that’s been synonymous with coffee for more than two decades in China, it has also declared a new chapter of its business as it tries to move on from its scandal-riddled past.

Founded in 2017 as a hip, budget-friendly alternative to traditional coffeehouses like Starbucks, Luckin vaulted itself into the Chinese coffee scene rapidly through major giveaways and unmatched discounts. Once hailed by investors as one of China’s top “unicorns,” Luckin made a grand debut on New York’s Nasdaq stock exchange in 2019 through a $600 million IPO.

But in less than a year, the Chinese coffee chain was forced to delist after admitting that its earnings had been exaggerated. As part of the fallout, the company fired both its chairman and CEO, and paid a penalty of $180 million to settle the accounting fraud charges with the U.S. Securities and Exchange Commission.

Since then, Luckin has been trying to restore its reputation. After reports of its sales growth last year, Luckin’s new CEO Guō Jǐnyī 郭谨一 acknowledged that some analysts were skeptical of the company’s financial results given the $300 million accounting scandal. “We have taken a lot of measures to clean up our own house,” Guo said in an interview, adding that Luckin had brought in external lawyers to review its operations and reorganized its teams.

In January, the Financial Times reported that Luckin was exploring whether it should relist its shares in the U.S., possibly as soon as the end of this year. The news of Luckin overtaking Starbucks in China sales will likely bolster optimism and accelerate the process, but Ma said she wasn’t sure if the Chinese company “really needs to be in a hurry to relist.”

“Being on the over-the-counter market hasn’t necessarily hurt their market cap as much as one would have thought, though of course it probably does prevent the more established, conservative firms from investing in them,” she added.

Cheap and sweet​

According to local media reports, there are a host of factors contributing to Luckin’s accelerated growth in the post-pandemic world. But above all, it’s the competitive pricing that wins the day for the Chinese coffee chain, as local consumers have to tighten their purse strings in the face of economic headwinds.

Doubling down on its pricing strategy, Luckin launched a month-long promotion in June centered around 9.9 yuan ($1.38) coffee drinks. In the first week of the campaign, the company sold over 39 million caffeine beverages. Throughout the month, the promotion brought in more than 50 million customers for Luckin.

Starbucks, on the other hand, maintained its premium image, with most of its products priced above 30 yuan ($4.7).
China’s coffee consumption has come a long way in the past three decades. Until the 1990s, java was rarely served in the country except at high-end hotels targeting foreigners. In 1999, when Starbucks opened its first store in mainland China in Beijing, it was a risky move for the international coffee giant to introduce a new source of caffeine to a nation of people who had been drinking tea for centuries.

In recent years, while coffee has gained widespread popularity among urban, young professionals, leading some analysts to predict that the country’s market for the beverage will exceed 200 billion yuan ($27.8 billion) in 2024, the habit is still nascent. Currently, coffee consumption per capita in the country is only five cups per year, according to industry sources. This compares to 363 cups per person in the U.S. and 300 cups for South Koreans.

For self-claimed coffee enthusiasts in China, there’s also room for debate over whether what they like to consume is truly coffee, Ma said, noting that popular coffee items at Chinese Luckin and Starbucks stores should be better described as “sugary mixed drinks with some coffee.”

Citing industry insiders, Ma pointed out that in the second half of 2022, coffee-based drinks only accounted for 60 percent of sales for Luckin. Of those, “five drinks made up for about 75 percent of the revenues, and four out of five are mixed drinks,” like coconut coffee, the chain’s flagship beverage.

“These drinks are all sugary and caffeinated,” Ma said. “While direct black coffee consumption isn’t very high, there is clearly a high preference for caffeine.”

 

[Menthol]

This is a very common problem plague for almost all startups.

Just read Softbank story, you will know it.

I can say for the sake of funding, almost all startups are exaggerating their worth and future potential.

They are all busy with market share and company valuation compared with profit, they hope when they manage to gain a significant portion of the market share, they will turn it into big profit in just one night and their company value is going to the roof.

The reality is, losses or burning investor money habit have been part of how they operate to win the market and keep floating the company value. If they stop lavish spending, they will fall in just one night, losing all the market share as well as the company value.

Startup product value does have value, but it is not as high as it seems, then adding with burning investor money, the value is multiplying. You strip away the investor money, it falls greatly.

Startups despite they bring innovation, they are also killing traditional healthy company and business practices.


Today, everyone is realizing it and many startups are falling one by one.

Btw, this is not new knowledge, if years ago, I'm saying this, people would call me a loser.

 

[Skull and Bones]

I don’t touch Chinese stocks no matter how lucrative the PE ratio looks.

 

[Nan Yang]

It was a penny stock that is now above $5 so people are tempted to buy. They aren't going to recommend a penny after it declared bankruptcy. That's a double danger.

View attachment 723314

So Luckin went bankrupt, weren’t the Chinese Brigade pumping Luckin just a few months ago? SMH

 

[Hamartia Antidote]

View attachment 952783

That's not on the NASDAQ. It's still in the penny low restrictions OTC market.