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Luckin Coffee Burns Investors With 39% Plunge

Janet Freund
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Luckin Coffee Burns Investors With 39% Plunge

(Bloomberg) -- Luckin Coffee Inc.’s initial public offering was met with great fanfare -- and then it wasn’t.

Shares of Xiamen, China-based Luckin Coffee soared as much as 53% to $25.96 on May 17, their first day of trading in the U.S. Since then, the stock has plunged 39% from that peak, even with a rally in the final half hour of trading Thursday that gave Luckin a 7.1% gain for the day.

Investors have questioned the company’s sacrifice of profits in favor of a cash-burn strategy at the same time as the rocky China-U.S. trade relationship weighs on global markets. The Chinese startup is seeking to overtake Starbucks Corp., opening more stores in two years than the industry giant has in 20 years.

Luckin’s 7.1% decline from its offering price of $17 per share -- to $15.79 as of Thursday’s close -- isn’t as bad as the performance from ride-hailing company Lyft Inc., which is down 20% from its offering price of $72 in late March. But it’s a frustration for market watchers such as Hedgeye Risk Management analyst Howard Penney, who last week projected 50% upside for the stock.

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