Luckin Coffee, the Chinese coffee chain that was once seen as a challenger to Starbucks, has been in the news for all the wrong reasons lately. The company’s stock has been on a downward spiral since the beginning of the year, and it hit a new low in early May. As a result, many investors are wondering if it’s safe to buy the dip.
The short answer is no. While it’s true that Luckin Coffee’s stock has fallen significantly, there are still too many uncertainties surrounding the company to make it a safe investment. The company is currently under investigation by the US Securities and Exchange Commission (SEC) for alleged fraud, and it has already admitted to inflating its sales figures by over $300 million.
Furthermore, Luckin Coffee’s business model is heavily reliant on physical stores, which have been hit hard by the COVID-19 pandemic. The company has already closed over 2,000 stores in China, and it’s unclear how many more will follow. This could have a significant impact on the company’s revenue and profitability in the coming months.
In short, while Luckin Coffee’s stock may seem like a bargain right now, it’s important to remember that there are still too many risks associated with the company. Investors would be wise to wait until the SEC investigation is complete and the company’s financials are more transparent before considering an investment.