Coronavirus problems are not the only problem for Luckin Coffee Stock

<p>Everyone wants to own the next Starbucks (NASDAQ: SBUX). Unfortunately, Starbucks is already virtually a monopoly on the American coffee market. Shares of Starbucks are not that cheap anymore. Therefore, when looking at the Asian market, some traders see Luckin Coffee (NASDAQ: LK) as a ticket to prosperity.

Source: Keitma /

Coronavirus from China, however, threw a proverbial wrench. As Luckin is a Chinese company, there are questions about whether the country’s economy is on a solid footing. Timing is everything when it comes to investing, so is this a good time to take a chance on LK shares?

Danger signs

Recently, LK shares have zigzagged, often not in line with indices such as the S&P 500 and China’s stock index in Shanghai. This behavior is a sign of the pressure on companies selling Chinese consumer goods.

We have probably all heard that factories were closed and workers sent home to China due to coronavirus. Apple (NASDAQ: AAPL) acknowledged in principle that their guidance for future revenue needs to be revised lower.

US stockbrokers may assume that the Chinese economy has stabilized. But as we saw with Apple, Luckin Coffee’s revenue expectations have been lowered. Even if the coronavirus was somehow stopped today, the economic ripple effect will remain for a while.

In Luckin’s case, the company was forced to halve revenue from the first quarter. The previous estimate had been 2.2 billion to 2.3 billion yuan. In dollars, it would be close to $ 315.3 million. The revised figure must reflect the impact of the virus on the Chinese economy.

Unreliable information

I have heard people from all walks of life say that the number of coronaviruses coming out of China is unreliable. They’re probably right about that. However, it would be very difficult to prove this claim.

It is quite possible that the death and disease statistics will be revised higher at some point. This in itself may affect Chinese shares and therefore also Luckin’s shares. But there is another issue of transparency here. And that’s specifically for Luckin Coffee.

Specifically, Luckin has recently been subjected to fraudulent reporting by Muddy Waters Research. The research agency tweeted the following in a summary of its report:

We received an unwritten 89-page report claiming that $ LK is a scam: “the number of items per store per day was inflated by at least 69% in 2019 3Q and 88% in 2019 4Q, supported by 11,260 hours of in-store traffic video” see the work as credible. ”

The statement may not be true. However, PR fallout alone can haunt Luckin. According to the report, for example, “Luckin knows exactly what investors are looking for, how to position themselves as a growth stock with a great history and what important measures can be manipulated to maximize investor confidence.”

This really paints Luckin in a bad light and forces shareholders and potential shareholders to reconsider their confidence in the company.

Luckin denied the allegations, saying “[t]the report’s methodology is flawed, the evidence is unwarranted and the allegations are unsupported speculation and damaging interpretations of events. ”

I believe that transparency is a key value for all companies. As such, investors may consider waiting for the fallout from this alleged scandal to subside before taking a position in the LK share.

Takeaway at LK Stock

The question of whether the holding of Luckin Coffee shares is still an open one. Before the questions about the full impact of the coronavirus and Luckin’s transparency are fully clarified, it is probably best to stay on the sidelines.

David Moadel has provided compelling content – and crossed individual lines – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) He also serves as chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Watching the Markets. At the time of writing, he had no position in any of the above-mentioned securities.