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Why Luokung Stock Sank 26% Today: It's Not Just China

By Neha Chamaria – Updated Sep 20, 2021 at 5:09PM

Key Points

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Investors in the Chinese company betting on autonomous vehicles had to put up with more than one bit of bad news.

What happened

With Chinese stocks falling off the cliff Monday, it wasn't surprising to see Luokung Technology (LKCO 11.52%) shares take a hit, too. The huge drop in the price of the Chinese tech stock, though, caught investors off guard: Luokong shares were down an astounding 26.4% as of 3:30 p.m. EDT today.

So what

Two developments rattled investors in Luokung.

First were investor concerns about China, what with China Evergrande Group (EGRN.F 542.86%) reportedly likely to default on billions in debt and file for bankruptcy. As one of China's leading property developers, Evergrande could have a domino effect on the real estate and financial sectors in the nation. If it collapses, it could stall growth and perhaps even drive China into a recession if things take an ugly turn like they did during the Lehman Brothers financial crisis of 2008.

China is also among the fastest-growing markets for autonomous cars, and Luokung in particular is betting on that for growth.

A stressed person looking at a falling stock price chart on a computer screen.

Image source: Getty Images.

Not surprisingly, the looming Evergrande threat is a big one that saw investors fleeing Chinese stocks in panic. Luokung in particular was hit really hard as it's a small-cap stock that had quite a run-up last week. Prices of small-cap stocks are typically volatile.

To make matters worse, on Sept. 20, Luokung announced a stock offering of shares worth $32.8 million at $1.20 a share to institutional investors to raise funds for working capital and general corporate purposes.

That offer price represented a sharp drop from Luokung's Friday closing price of $1.59 per share. As expected, the stock crashed by double digits below $1.20 a share soon after the announcement and remained under pressure through the day.

Now what

Luokung's subsidiary eMapgo Technologies is among the largest mapping companies in China, striving to expand into global markets. It has notable partners, including Microsoft and Geely Automobile Holdings, China's largest automaker.

As exciting as these facts and Luokung's prospects appear, China woes could stall the company's growth plans. So if you're an investor in Luokung, you might want to brace for a bumpy ride.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

Luokung Technology Corp. Stock Quote
Luokung Technology Corp.
LKCO
$0.19 (11.52%) $0.02
Microsoft Stock Quote
Microsoft
MSFT
$250.20 (-1.89%) $-4.82
GEELY AUTOMBL HL UNSP/ADR Stock Quote
GEELY AUTOMBL HL UNSP/ADR
GELYY
$30.35 (-1.40%) $0.43
EVERGRANDE REAL EST Stock Quote
EVERGRANDE REAL EST
EGRN.F
$0.09 (542.86%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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