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Why Luckin Coffee Stock Plunged Today

What happened

Shares of Luckin Coffee (NASDAQ: LK) were tumbling again today as the stock continues to slide after the Nasdaq said on Tuesday it plans to delist it from the exchange. Today, the Senate passed a bill that could delist Chinese stocks from American exchanges, which comes in part as a response to fraud revelations at Luckin, which caused American investors to lose billions.

Luckin shares were down 25.9% as of 3:00 p.m. EDT, trading just north of $2.

Image source: Getty Images.

So what

On Tuesday, Luckin said it had received a letter from Nasdaq with plans to delist the stock due to its fraudulently inflating its sales. That issue, originally brought to light by a short-seller, led to a collapse in Luckin stock when it said on April 2 that it had found fabricated sales transactions equivalent to about $300 million in an internal investigation.

Nasdaq halted trading of the stock on April 7, and it resumed trading yesterday after the company revealed the delisting notice. The stock fell sharply yesterday and continued to slide today as investors seek to get what money they have left in the stock out before the delisting.

Now what

Luckin has requested a hearing, which is expected to take place in 30 to 45 days. However, it seems highly likely that the company will be delisted.

At this point, Luckin Coffee looks like a cautionary tale. The company posted skyrocketing growth numbers as it blanketed China with new stores, but as the saying goes, if it's too good to be true, it often is.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Luckin Coffee Inc. The Motley Fool has a disclosure policy.


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