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Why Luckin Coffee Stock Just Bounced 10%

By Rich Smith – Jun 12, 2020 at 11:23AM

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After falling 82.5% in 12 months, it'll be a long way back to breakeven.

What happened

After tumbling 15% in Thursday's broad-based market sell-off, shares of Chinese coffeehouse chain Luckin Coffee (LKNC.Y -0.71%) are enjoying a bounce today -- up 10.5% as of 10:55 a.m. EDT.

So what

Honestly, there doesn't seem to be any reason for that, given that there's no news from Luckin, nor any news about Luckin, either. There are no analyst upgrades supporting the stock, nor is anyone suggesting that, after falling 82.5% in the past 12 months, Luckin deserves a higher price target.

A steaming cup of coffee sits on a counter.

Image source: Getty Images.

Now what

What we do know is this:

Luckin Coffee is a three-year old coffee chain with zero history of ever earning a profit, and no free cash flow whatsoever. It might have grown its sales rapidly ($475 million through the last 12 reported months, according to S&P Global Market Intelligence's most current data) -- but then again, it might not have, given that the company has been accused of massive accounting fraud, and faking as much as two-thirds of the sales it claims to have made.

On top of all this, Luckin Coffee is a Chinese stock, which means it's at risk of being forced out of U.S. stock markets, and having its shares either delisted or made nearly impossible to sell (or both) if legislation that's currently already halfway through Congress, makes it to the White House and is signed into law.

Long story short, these shares may be jumping today, but I still wouldn't touch Luckin Coffee stock.

Rich Smith 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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$16.02 (-0.71%) $0.12

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