After all those things happened, many expected that the stock would simply disappear on what they saw as an inevitable path toward zero. Yet
after more than a week of trading on the over-the-counter market,
Luckin has defied those bearish calls. Instead, the stock has more than
doubled. Here are some of the reasons why.
1. Trading hasn't dried up
For many stocks, getting delisted from a major exchange means accepting an alternative for trading that has far less liquidity. That
makes it difficult for institutional traders to get good executions when
they want to buy and sell stocks, and it typically forces individual
investors to deal with wide bid-ask spreads that are costly for frequent
traders.
That hasn't happened with Luckin. Even over the counter, trading volume has remained above 10 million shares per day. For those looking
to trade shares, bid-ask spreads remain at a reasonable $0.01. For those
looking to speculate on the company's future, the only thing that's
changed is the ticker symbol.
2. Investors expect that Luckin will try to go private
Chinese stocks have struggled for a while, and many investors believe that their poor performance has left them undervalued and
underappreciated. For companies that are frustrated about what they see
as unwarranted low share prices, the natural choice is to make an offer
for a buyout. Even paying a sizable premium, going private can give
insider buyers a bargain as well as all the advantages of not being
publicly traded. The fact that U.S. lawmakers have started to scrutinize
Chinese companies with stock listings in the U.S. is also an incentive
to go private.
Earlier this month, Chinese internet company SINA (NASDAQ:SINA) announced that it would look to go private. The buyout offer came from
CEO Charles Chao through a controlled entity, with the $2.7 billion
price representing a 12% premium to where the stock was previously
trading.
Critics have noted that several Chinese companies have made similarly cheap buyout offers to go private. Then, they've turned around
and quickly done IPOs within China or Hong Kong at much higher
valuations. That's bad news for long-term investors in those stocks.
However, for those looking for a quick profit, paying $1.50 per share
for Luckin stock when it got delisted in the hopes of getting somewhat
more in a going-private deal could turn out to be a profitable
short-term trade.
3. Shareholders hope new management could help Luckin recover
Lastly, those watching Luckin have seen a huge shakeup across the company's entire management. The company fired CEO Jenny Qian and COO
Jian Liu in May. Just this past weekend, Luckin founder and board chair
Charles Lu left the board of directors along with three other members.
At first glance, it might seem like Luckin has hit the reset button and
can now make a go at restoring its business. That confusion has some
shareholders optimistic about the coffee chain's promise, and they're
willing to gamble that the stock could regain at least part of the 95%
it lost.
Unfortunately, there's still a lot of controversy involved. Even though Lu left the Luckin board, he played a key role in naming the
directors who replaced him and his colleagues. If Lu is in control, then
it could hamper a recovery rather than facilitating it. Nevertheless,
there's a lot of uncertainty and a lack of transparency with what's
going on in Luckin's boardroom.
