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Luckin Coffee Starts Trading Again

By Taylor Carmichael – May 20, 2020 at 9:58AM

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The embattled coffee chain in China tries to recover from insider fraud.

High-flying coffee house company Luckin Coffee (LKNC.Y 0.60%) is once again trading on the Nasdaq, after the stock had been halted for over six weeks. Shares of the incredible growth stock came crashing down when it was revealed in April that company insiders had engaged in massive fraud in reporting the company's numbers.

Luckin last reported $200 million in revenue in its most recent quarter, with incredible sales growth of 557%. Those numbers were indeed too good to be true. The company has since revealed that its chief operating officer, Jian Liu, and several other employees fabricated sales of over $319 million in 2019. The stock dropped almost 80% in a day when the news came out.

negative stock chart and investor with head on desk

Image source: Getty Images.

Can Luckin bounce back?

Luckin has still not finished its accounting investigation, so investors will have to wait to find out what the real numbers are. The company is facing numerous lawsuits in the wake of the fraud. Some analysts are already speculating that Luckin is not a going concern. John Zolidis, president of Quo Vadis Capital, said that the "most likely outcome" would be a "complete wipe-out for equity holders." 

Of course, a number of Wall Street firms that are highly negative on Luckin are also shorting the stock. Back in April, S3 analyst Ihor Dusaniwsky said that short-sellers had made over $1 billion when the share price went tumbling. Investors should expect a lot of volatility as more shorts pile on, and other shorts start covering their positions.   

Last week the board fired Luckin's CEO, Jenny Qian, as well as the COO. A director of the board, Jinyi Guo, is now serving as acting CEO. The stock is down 38% in early trading on Wednesday. 

 

Taylor Carmichael has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Luckin Coffee Inc. The Motley Fool has a disclosure policy.

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