Dear readers, Luckin Coffee stock was on my radar last year. Especially when the much-touted Chinese equivalent of Starbucks had embarked on an aggressive expansion plan in China, opening stores after stores, giving discounts and complimentary deals to grow their share of the market pie. I had traded in the stock at least once but did not want to hold on to it as the debt of the stock is high.
At its highest point in January 2020 last year, Luckin Coffee stock traded at USD 51.38 in January 2020. Recently, the stock price of Luckin Coffee stock was more modest at USD 26.20 on 1 Apr 2020.
On 2 Apr 2020, however the stock plunged to as low as USD 4.90 during the trading session. As of yesterday, Luckin Coffee stock closed at USD 5.38.
From a USD 51.38 January 2020 price to USD 5.38 as of yesterday, that is nearly a 90% plunge in stock price. What has happened to this Chinese equivalent of Starbuck that has its competitive strategy based on growing and gathering scale quickly?
Well, it was reported that investigations has discovered that some sales figures of Luckin has been fabricated. The rest, as they say is history.
The case of Luckin Coffee stock again exemplifies my belief that fundamental analysis, value-investing analysis is not always fool-proof as in some cases financial numbers reported may not always be reflective of actual business. Secondly, I always think that some forward-looking business information privy to the business owners may not always be known to general investors.
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