Investment Thesis
In this article, I argue that the market is too optimistic about Luckin Coffee's (LK) future, with its current valuation of 20x P/S and 2.9% quarter-over-quarter (QoQ) sales growth. I argue that:
- Sales growth has mainly come from the expansion of stores. Currently, it has 3,000 stores in China, and they are already dense in major cities in China. There is not much room for new openings.
- Luckin currently gives its customers a 60% discount on average, which makes it far from breakeven. The estimated breakeven price for Luckin is 20 RMB per