Luckin Coffee (LK) may soon be a top “blood in the street” opportunities.
Weeks ago, short sellers Muddy Waters alleged the company fabricated its financial and operating numbers beginning in the third quarter of 2019. Luckin then called the report “flawed” and that “evidence is unsubstantiated.
But as it turns out the short seller was right to call out an issue with this stock.
Shares of LK just plummeted nearly 80%, or $20.58 at the open after the company suspended its COO and several employees for misconduct related to fabricating sales transactions that could have totaled $300 million. It also said investors should not rely on prior financial statements and releases for the nine months ended September 30, 2019, or the two quarters starting April 1, 2019 and ending September 2019.
Look out below, near-term.
Luckin also said “that the internal investigation is at a preliminary stage and its estimate of the fabricated sales has not been verified by its independent auditor,” as noted by CNBC. “The company’s special committee has retained Kirkland & Ellis as its independent outside counsel and FTI Consulting as an independent forensic accounting expert.”
There is Still Opportunity in LK
Once the storm clouds clear, there may still be plenty of opportunity for the stock.
We have to remember the annual growth rate of coffee consumption in China alone is nearly 20%, which is more than 2% above the global growth rate, as noted by Coffee Business Intelligence. As that number increases, the value of China’s coffee market could reach billions of yuan over the next decade.
Short-term, the stock has a real mess on its hands thanks to a ridiculous COO.
Long-term, once the storm clouds clear, LK may be a solid blood in the street opportunity. Stay tuned for more on this developing story.
