Plagued by one scandal after another, Luckin Coffee (OTCMKTS:LKNCY) is scarcely even known for serving coffee anymore. It’s known for being nothing but trouble, particularly for investors seeking to turn a profit from Luckin stock.
It’s easy to write Luckin off as finished, but a bona fide contrarian investor must think outside the box. If the mainstream narrative is that the short side of the trade is the correct one, then we should remember that most traders are wrong. Therefore, a long position in Luckin stock should be considered.
On the other hand, one shouldn’t just enter into a trade solely because most people oppose it. Owning shares of a stock means believing in the future prospects of the company. Does Luckin stand a chance of survival, or are bankruptcy proceedings in the company’s future?
As always, the devil is in the details, so let’s get into those details and see if Luckin stock’s a buying opportunity or just dead money.
A Closer Look at Luckin Stock
As you may already be aware, Luckin stock previously traded on the Nasdaq but was basically demoted to the OTC markets. This makes it more difficult to analyze the price action of the stock in a meaningful way. Still, it’s important to take note of the recent price moves as well as the trading volume.
The bulls should be encouraged to know that Luckin shares have moved higher since late June. In fact, June 30 marked an important day for Luckin stockholders as that’s when the shares pierced above the psychologically significant $2 mark.
Not only that, but the stock then proceeded to rocket up to $4.90 on July 9. However, chasers were punished as the shares then declined below the $3 level. By July 17, Luckin shares settled at $2.68 and the bears appeared to still be in control of the price action.
To make matters worse, there has been a noticeable drop-off in trading volume on the stock since the July 9 peak. The bulls will need to come out in force and show the bears who’s boss. Specifically, they’ll want to push Luckin stock back above $3 and keep it there with strong volume. Otherwise, they risk losing the $2 level and that would be devastating.
A Shakeup a Luckin
Change is a good thing, and it’s a very good thing that Luckin’s top brass finally saw some positive change after many weeks of strife. The embattled coffee company recently announced that board member and former acting chief executive officer Jinyi Guo has been selected to serve as Luckin’s board’s chairman as well as the company’s CEO.
With a new CEO at the helm, Luckin will at least have a new spokesperson. That, by itself, won’t wipe away the memory of all the scandals. However, at least it’s emblematic of a step in the right direction. It could even signal a new beginning for Luckin.
It’s actually a reasonable move for the company to select someone who was already with the company. Change doesn’t have to be so drastic that everyone is fired and replaced. If Guo knows the company inside and out, that could help to smooth over the transition during this challenging time.
Moreover, the shakeup should be enough to convince Luckin’s stakeholders that the company is serious about reinventing itself. Along with installing Guo as the permanent CEO, Luckin now has two new independent board members while four board members have departed.
Plus, while some folks might think that Luckin is a bankrupt company, that is not the case at the time of this writing. Rumors will swirl, though, and that may be a contributing factor as Luckin stock’s bearish price action.
And in some cases, undue negativity can lead to a share-price comeback. When negative rumors turn out to be exaggerated or false, that leaves room for a swift turnaround, both for the company and for the stock.
The Bottom Line
Can Luckin stock get off the ground and back to $4 at least? It’s a lottery-ticket type of bet, no doubt. Still, there’s always a chance and a small position could be warranted. After all, a shakeup can make the coffee taste that much better.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.