Market Overview

Luckin Coffee Short Sellers Make $1.1B In Profits As Shares Continue Plummet

Luckin Coffee Short Sellers Make $1.1B In Profits As Shares Continue Plummet

Luckin Coffee Inc - ADR (NASDAQ: LK) shares dropped another 15% on Monday after the company said last week an internal accounting investigation has revealed COO Jian Liu allegedly fabricated fraudulent transactions to boost the company’s sales.

The stock is now down 89% in the past month, and short sellers have already made more than $1 billion in profits on the stock this year.

On Friday, S3 Partners analyst Ihor Dusaniwsky said Luckin short sellers had made $1.14 billion in net-of-financing mark-to-market profits in 2020 as of the end of last week. Luckin has $240 million in short interest, making it the single most heavily shorted Chinese stock based on short percent of float. S3 estimates 37.9% of Luckin’s float is currently held short. The day the company reported the alleged fraud, short sellers pocketed $687 million in profits.

Since the outbreak of COVID-19 started getting mainstream attention, Dusaniwsky said Chinese stocks have gotten a lot of attention from short sellers.

See Also: Luckin Coffee Crashes After Company Admits COO 'Fabricated Transactions'

Other Top Chinese Shorts

In terms of total short interest Ping Insurance Group's Hong Kong shares are the most heavily shorted Chinese stock with $9.7 billion in short interest. Ping is followed by Alibaba Group Holding Ltd (NYSE: BABA) with $5.8 billion in short interest and Tencent Holdings (OTC: TCEHY) with $2.7 billion in short interest.

Several U.S.-listed stocks are among the Chinese stocks with the highest short percent of float. In addition to Luckin at the top of the list, Baozun Inc (NASDAQ: BZUN) has a short percent of float of 28.1% followed by JinkoSolar Holding Co., Ltd (NYSE: JKS) at 26.4% and Nio Inc (NYSE: NIO) at 16.3%.

Dusaniwsky said Luckin short sellers currently account for about 9.2% of total stock borrow expenses in the Chinese market.

“Short sellers in the HK\Chinese region are paying $1.97 million in stock borrow financing costs per day, equating to $710 billion of financing expenses per year,” Dusaniwsky said.

Benzinga’s Take

Many of these most heavily shorted stocks are heavily shorted for a reason, so long-term investors should be cautious about being too aggressive in buying the dip. Make sure to fully understand the bear thesis before doing any bargain hunting during the coronavirus dip.

Do you agree with this take? Email with your thoughts.

Photo by N509FZ via Wikimedia

Latest Ratings for LK

Apr 2020NeedhamSuspendsBuy
Feb 2020NeedhamMaintainsBuy
Jan 2020KeyBancMaintainsOverweight

View More Analyst Ratings for LK
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