Luckin Coffee's (NASDAQ: LK) stock tumbled this past week amid concerns that the ongoing coronavirus outbreak in China would curb the coffee chain's sales growth. The outbreak, which has killed over 80 people and infected 2,700 others across China as of this writing, has already resulted in the lockdown of nearly 20 Chinese cities.
The Chinese New Year holiday, which spans Jan. 23 to Jan. 29, is also exacerbating the virus's spread across China and into other countries. Do those fears justify Luckin's steep sell-off? Or is gravity simply catching up to the high-flying stock, which until Jan. 21 was up 194% from its $17-a-share IPO (initial public offering) price last May, but is now down 25% since that 52-week high on Jan. 17?
Luckin is a divisive stock for bulls and bears. The bulls highlight its meteoric growth rates: Its revenue soared 558% annually to 1.49 billion yuan ($209 million) last quarter; its store count grew 210% to 3,680; its number of active monthly customers jumped 398% to 9.3 million; and its store-level operating margin -- which excludes promotions, discounts, and marketing expenses for new stores -- is improving.