Luckin Coffee Is A Ticking Time Bomb That Might Explode Later This Month

Luckin Coffee Is A Ticking Time Bomb That Might Explode Later This Month

Last time I wrote about Luckin Coffee Inc. (LK), I attracted a lot of criticism for suggesting investors who bought the stock at recent highs of around $50 should wait it out and see what happens. At the time of publishing the first article, Luckin Coffee stock had already plummeted to around $4, and I thought shares would bounce back because of its liquidity position and the revival of the Chinese economy. The store count of around 4,500, I noted, is not fictitious. The trading ban on the stock was lifted on May 20, and after falling dramatically, shares are now trading above $6 in the pre-market session on June 8 at the time of writing this article. Shares, indeed, have recovered faster than many investors thought it would, if at all. My first piece on Luckin Coffee was targeted at investors who bought the stock at recent highs. On the contrary, this article focuses on investors who are considering investing in this troubled company and the ones who picked up shares from the historic lows seen during the last week of May. Even though the momentum is very strong, I consider Luckin as a ticking time bomb that will explode toward the end of this month. The prudent decision, therefore, would be to distance from Luckin Coffee by booking the gains and never looking back.To get more news about luckin coffee stock, you can visit shine news official website.

The timeline of the delisting process

The company, in a press release dated May 19, announced receiving written notice from Nasdaq confirming the decision the index committee has reached to delist its shares. A quick glance at the list of noncompliant companies published every day by Nasdaq on its website reveals two reasons behind this decision.

Failure to disclose material information in a timely manner. Public interest concerns (as a result of the accounting fraud). Luckin has reportedly received the notice from Nasdaq on May 15, and the company has requested a hearing before a panel to appeal this decision. According to Nasdaq listing rules, a company has 7 days to challenge a decision taken by its committee. Luckin Coffee, therefore, would have requested this hearing on or before May 22. As per standard procedure, the hearing will take place 30 to 45 days after the request, which means Luckin Coffee could go in front of the hearing panel as early as the third week of June.

There is no guarantee, but chances are that Nasdaq will execute its decision to delist Luckin Coffee. The next step, therefore, is to determine what might happen afterward.

Once delisted from Nasdaq, Luckin Coffee will be traded on the OTC market. This, according to many recent investors, is a guarantee that the stock will start from where it left off. However, the reality is much more different from that.

First, Luckin Coffee stock is likely to decline drastically once the delisting is confirmed. The remarks of the Nasdaq panel will renew the unpleasant memories of how company executives reported fictitious revenue in 2019, and this will lead to a deterioration of the investor sentiment as well. The bad news, as I believe, is only a few weeks away but Mr. Market seems to be oblivious.

Second, many investors will soon find out that the liquidity in the OTC market is considerably low in comparison to major indexes such as Nasdaq and the S&P 500. The results of a study conducted by Yale University and Cornell University confirm this.