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Why Luckin Coffee Stock Plunged Today

By Joe Tenebruso – Jun 23, 2020 at 6:42PM

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The beleaguered coffee chain received another exchange warning.

What happened

Shares of Luckin Coffee (LKNC.Y -1.32%) fell more than 12% on Tuesday after the Chinese coffeehouse company disclosed that it received another delisting notice from Nasdaq

So what 

Luckin Coffee said that it received a notice from the Nasdaq Stock Market on June 17, which warned that its failure to file its annual report would serve as an additional reason for delisting its shares.

"The company has been working diligently to explore possible ways to file the annual report as soon as possible," Luckin said in a press release. "However, the company has not been able to file the annual report due to the impact of the delayed financial statement preparation process caused by COVID-19 and the pendency of the previously disclosed internal investigation."

A stock chart that falls then rises then falls again.

Luckin Coffee stock fell sharply on Tuesday after receiving another delisting notice. Image source: Getty Images.

On April 2, Luckin disclosed that it had fabricated as much as $310 million in sales from the second quarter of 2019 to the fourth quarter. The company launched an internal investigation that would lead to its CEO and chief operating officers being removed from their positions. 

Subsequently, on May 19, Nasdaq warned Luckin that its shares could be delisted due to its fabricated transactions and failure to disclose material information related to those transactions. 

Now what

In addition to the potential delisting of its shares from the Nasdaq exchange, forced asset sales could put further pressure on the beleaguered coffee chain's share price. Lenders recently won a court order that will help them attempt to recover more than $300 million of outstanding debt from Luckin Chairman Lu Zhengyao. The court orders will allow these lenders to liquidate investment funds holding large amounts of Luckin stock. This forced selling of Zhengyao's shares could drive Luckin's stock price even lower in the days and weeks ahead.

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

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