Luckin Coffee, Inc. [NASDAQ: LK] was a big gainer on Friday, and was up by about 7% on Friday’s close with roughly 3,669,587 shares trading hands for the day. There’s a lot of excitement around this stock, with some Wall Street analysts raising its short-term projections. One such analyst is Eric Gonzalez of KeyBanc capital. Gonzalez has given this stock a price target of $22. He, like other analysts, believes that this stock has significant growth potential, by offering high quality and low-cost coffee.
However, the big catch for Luckin Coffee is China. This company has rose to become a major consumer brand in China, and it’s a big deal for its long-term growth. China is only getting started on the coffee culture, and with one of the largest and fastest growing middle classes in the world, it provides a massive opportunity for consumer brands. In essence, the fact that LK has a strong presence in this market makes it a high growth stock, with lots of potential.
The company also has a few direct competitors in the Chinese market. However some analysts believe LK has very limited competitors in its core market. This is a big deal for a company that is taking on potentially one of the largest coffee markets in the world. If it dominates the coffee market in China, it could potentially generate billions of dollars in revenues in coming years.
Another factor that gives this company a strategic edge in the market, and gives it the potential to outperform the markets is its low cost per unit. Operational costs in China are sometimes significantly lower than they are in the west. This means that unlike in western companies like Starbucks, Luckin Coffee [NYSE: LK] has the potential to generate more per unit sold. This in turn translates to a potentially higher return on investment for investors.
The company’s numbers also paint a growth picture, and are in tandem with Wall Street’s bullish sentiment. For instance, the company’s quarterly revenue growth stands at 3,593.90%, an indicator that the market is receptive of the company’s product offering. It’s also an indicator that the company’s grip on the Chinese market is growing. However, it should also be noted the company is still losing money.
With these factors at play, it is not surprising that LK continues to trade in bullish territory post-IPO. Currently, it is up a little bit in pre-market trading. That’s an indicator it could continue last week’s bullish momentum when markets open. Also something to note is that on the chart listed below, LK is trying to bounce off the $17 ish range. If it can continue its uptrend today, or in the coming days, and break the resistance at $22 ish then this stock may make new highs in the near term.