Luckin Coffee Inc. shares fell 32.1% after resuming trading after more than a month, and Quo Vadis Capital expects stocks to continue to fall.
Luck
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He is under investigation for financial misconduct and has dismissed its key executives, including Jenny Zhiya Qian, the company’s former CEO.
The company is accused of fabricating transactions totaling approximately $ 310 million.
“We continue to see the most likely outcome as a total elimination for shareholders,” said John Zolidis, president of Quo Vadis, in comments to MarketWatch.
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Zolidis anticipates that the company will have to start closing stores, which will lead to further damage. Luckin joined the group in 2017 and by 2019 it had grown to 2,370 wholly owned stores in 28 cities.
“Leaving aside fraud, the available figures suggest that Luckin Coffee never had a viable business model,” said Zolidis, and predicted that store closings would occur due to loss of access to capital. “The business has grown too quickly and acquired customers through promotional offers, without testing the economy.”
And he has no hope for the places that remain. The cash flows will be offset by closings, business expenses and future demands, said Zolidis.
“We assign very distant ratings to the hope that Starbucks Corp.
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or another party will rush to buy Luckin’s assets before the liquidation, “he wrote.
In an April note, Zolidis said that Luckin’s stores “generate significant losses” and “do not appear to produce positive sales in the same store”. He asked if the business could make a profit.
Quo Vadis evaluates the sale of Luckin shares.
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In addition to Luckin’s problems, the Nasdaq sent the company an exclusion notice. Luckin said the letter was motivated by “public interest concerns” because of the “fabricated” transactions disclosed by the company in its annual report and because of the company’s past failures to publicly disclose material information .
Luckin said he plans to request a hearing with Nasdaq, and that the hearing should take place 30 to 45 days after the request.
Luckin’s shares have fallen over 92% for the year to date, while the S&P 500 index
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It is so far down 9.5% for 2020.
Additional reporting by Tomi Kilgore.