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Luckin Coffee (LKNCY) stock price will be on edge on Wednesday as investors read the tea leaves from the latest Starbucks earnings report. Shares of Luckin, the biggest Chinese coffee giant, have plunged by more than 43% from their highest point in 2023.
I often use and write about contrarian investing. That involves trying to identify stocks whose value is being greatly underestimated by the market.
Medium-cap stocks, as the title of my article states, are indeed the “Goldilocks” of equities. That's because small-cap stocks are prone to bankruptcies and thesis-shattering events, such as products that malfunction and new, ruinous competitors.
Luckin Coffee's valuation is still low, considering its explosive growth rate. Soho House has a spectacular economic moat and a pathway to profitability.
Luckin Coffee's shares have steadily increased since December 2021, with a 103% increase in the last year. The company's brand marketing strategy and embrace of digitization are driving its growth and market share in China. Luckin Coffee's low-price strategy, online ordering system, and convenient outlets have helped it surpass Starbucks and become China's largest coffee chain.
Luckin Coffee has seen a doubling of its share price over the past year, trouncing the returns of other Chinese consumer discretionary offerings. Luckin Coffee is growing at 4x the pace of the market, but we have some concerns with the growth strategy. The current risk-reward on the charts does not look too appealing either.
Many companies have reported very strong, impressive third-quarter results in recent weeks. Among the names in that category were General Electric (NYSE: GE ), Caterpillar (NYSE: CAT ), JPMorgan (NYSE: JPM ), PayPal (NASDAQ :PYPL ) and Microsoft (NASDAQ: MSFT ).
Quality companies can perform well, even in an uncertain macroeconomic environment. Global-e helps merchants operate internationally by handling the global side of their business.
Despite the opacity of China's economy, small-cap Chinese stocks continue to attract attention, according to Stocktwits, a social platform for investors and traders.
Luckin Coffee hit 10,000 stores in China in June, surpassing Starbucks as the largest coffee chain brand in the country following rapid nationwide expansion this year.