Luckin Coffee stock sinks 32% after trading resumes and one analyst says investors will be ‘wiped out’

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Luckin Coffee Inc. stock slumped 32.1% once it started trading again after more than a month, and Quo Vadis Capital thinks the stock will keep sinking.

Luckin LK, -36.10% is being investigated for financial misconduct and has terminated its top executives, including Jenny Zhiya Qian the company’s former chief executive.

The company is accused of fabricating transactions totaling about $310 million.

“We continue to see the most likely outcome as a complete wipeout for equity holders,” said John Zolidis, president of Quo Vadis, in comments sent to MarketWatch.

Zolidis forecasts that the company will have to start closing stores, which will do further damage. Luckin was incorporated in 2017 and by 2019 had grown to 2,370 wholly owned stores in 28 cities.

“Leaving aside the fraud, the figures that are available suggest that Luckin Coffee never had a viable business model,” Zolidis said, forecasting that the store closures will come as a result of losing access to capital. “The company grew too fast and acquired customers via promotional offers, without ever proving the economics.”

And he isn’t hopeful for the locations that remain. Cash flow will be offset by the shutdowns, corporate expenses and lawsuits to come, Zolidis said.

“We ascribe very remote odds to the hope that Starbucks Corp. SBUX, +1.74% or another party will swoop in to buy Luckin’s assets prior to liquidation,” he wrote.

In an April note, Zolidis said Luckin’s stores were “generating significant losses” and “do not appear to produce positive same-store sales.” He raised questions about whether the company could ever produce a profit.

Adding to Luckin’s woes, the Nasdaq has sent the company a delisting notice. Luckin said the reason for the letter was “public interest concerns” given the “fabricated” transactions disclosed by the company in its annual report, and because of the company’s past failures in publicly disclosing material information.

Luckin said it plans to request a hearing with the Nasdaq, with the hearing expected to occur between 30 to 45 days after the request.

Luckin shares have plunged more than 92% for the year to date, while the S&P 500 index SPX, +1.42% is down 9.5% for 2020 so far.

This article was originally published on finance.yahoo.com/news

Home of Science
Follow me

Latest posts by Home of Science (see all)
- Advertisement -

Discover

Sponsor

Latest

The Hottest Shows of 2020

The Hottest Shows of 2020With two decades to go before the next presidential election, it's time to start worrying about who will be...

Deutsche Bank Joins With BOE to Ask Who Owns Venezuelan Gold

The lawsuits over the ownership of Venezuelan gold are starting to stack up. Deutsche Bank AG wants a judge to decide whether about 100 million...

New Trends In Hot Shows of 2020

New Trends In Hot Shows of 2020As it relates to the current hottest shows on television, I will say that I think the...

What Do You Know About the Steelers Super Bowl Halftime Show?

What Do You Know About the Steelers Super Bowl Halftime Show?The Super Bowl is approaching. If you have ever been to a sporting...

What to Look For in a Mesothelioma Attorney

When a person is diagnosed with mesothelioma, they want to make sure that they have the best mesothelioma attorney. There are several things that...
Home of Science
Follow me
Latest posts by Home of Science (see all)