The persistent trading of Luckin Coffee (OTCMKTS:LKNCY) shows some folks will buy anything. Luckin stock is destined to linger like unwanted nuclear waste.
This is a company with a very checkered past. There are so many reds flags warning investors to stay away that the horizon is a sea of red.
And yet, shares of this disgraced penny stock keep ping-ponging across the over-the-counter market. There are investors who just can’t let it go.
But let it go they should.
Luckin Stock Is Cheap for a Reason
When I think of Luckin, I am reminded of those awful TV commercials aired after midnight. An annoying announcer loudly overpromises a product that will underdeliver. The letters on screen are bright. The whole thing is meant to awaken the dozing viewer.
For less than $3, you can own a tiny piece of a company with some 6,000 locations across China. Never mind that this company boldly faked its numbers. And never mind that hot-beverage consumers in China prefer tea way more than coffee – unless they want the status they see in that well-known American brew.
This here bargain once traded as high as $51 per share. That was back when the company was fooling investors that it was legitimate.
Since that high watermark, Luckin was booted from respectable circles (the Nasdaq) to the back alley of the OTC. In comparison to its 52-week high, shares of the company dipped as low as 95 cents.
That’s not to say Luckin’s retail premise was flawed.
The company brought innovation to its stores in the form of a smartphone app and quick, contactless pickup of the steaming beverage. Luckin operates smaller sites without the famous sit-down-and-relax vibe offered by Starbucks (NASDAQ:SBUX), which trades around $85 a share.
There are signs that Starbucks recognizes the appeal of this type of service. The company likely will learn and apply the lessons as the marketplace continues to evolve.
Had Luckin not engaged in accounting fiction it might have made it. Even under the cloud of continued investigations, the company is selling enough coffee to keep operating.
Luckin Stock Lingers
The market issued its verdict on Luckin stock. Despite being delisted and shunned, LKNCY found love in the cadre of investors enthralled by cheap stocks. A lot of them are buying and selling this company as fast and furious as Vin Diesel drives in the movies.
On Aug. 31, about 1.6 million shares of Luckin stock were traded.
Obviously, day traders see potential in LKNCY’s dancing at the graveyard gate. And investors drawn by the low cost help keep the stock afloat, despite its many problems.
And, there are some who see the opportunity to speculate that Luckin Coffee will make a comeback, resolve its very troubled financial history, and survive to ride the fast-casual wave it launched. My InvestorPlace colleague Luke Lango says the company’s service model works.
However, this marginal activity surrounding Luckin stock won’t be fruitful for mainstream retail investors who are serious about improving their nest egg.
The Bottom Line
For all of the joy it brings (uncontested fact), coffee is not a magic elixir when it comes to your money. Especially when investing. There are no guarantees on Wall Street, which is why investors should not spend on a whim.
Companies have to demonstrate that they are worthy of investors’ trust – and hard-earned money.
Luckin violated this trust. Its fraudulent acts merit prison for executives and the curb for the company. Although there are signs that financial regulators in China are cracking down, U.S. investors probably won’t see the kind of action that would be expected here.
If you are thinking of investing in Luckin stock, hit pause. The company is worthy of only play money, and there are better alternatives for investing play money. Investing isn’t the right word here. LKNCY is not an investment but a way to throw money away.
Do you own LKNCY shares? I suggest selling them while there are folks out there willing to buy them.
The penny stock arena is full of companies that investors should avoid. Luckin Coffee earned its place on that list.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.