The coronavirus outbreak has now killed over 1,000 people, predominantly in China, as the country looks to contain the spread of the virus. The outbreak has forced the Chinese government to quarantine entire cities, shutdown factories, and disrupt regular economic activity.
As a result, Chinese stocks have been hit hard over the past month. The Xtrackers Harvest CSI 300 China A-Shares ETF (NYSE: ASHR), which follows the 300 most liquid and largest companies trading on the premier Chinese A-share market, is down 7.60% over the past month. Similarly, the iShares China Large-Cap ETF (NYSE: FXI) have seen losses of 6.49%, over the past month.
One Chinese stock that has been hit harder and looks primed for a comeback is Luckin Coffee, Inc. (NASDAQ: LK). The “Chinese Starbucks” has seen steep declines of 16.90% over the past month, as virus fears hit the overall markets. Despite over-extended drop, Luckin Coffee looks to be bottoming out and preparing to resume its rally.
LK: Chart Flashing Bullish Signals
Luckin Coffee hit an all-time high of $51.38, during trading on January 17, 2020. Since then, shares have slid to its current share price of $36.87, but the charts are showing signs of an impending bullish reversal.
The stock’s daily moving average convergence divergence (MACD) has had five consecutive days of higher-lows and flashing a bullish crossover potentially occurring over the next day or two. Luckin Coffee’s stochastics, which measure momentum, continue to have room to expand. Stochastics are currently touching, which could lead to a bullish push higher. The relative strength index (RSI) is a neutral 44.61.
Luckin Coffee Sees Improving Analyst Sentiment
In the face of Luckin Coffee’s recent decline, some research firms have come out to reiterate their bullish sentiment on the company. On February 4, 2020, both Needham and Citron Research issued bullish statements on the Chinese coffee company.
Needham analysts raised their price target from $27 to $40, citing Luckin Coffee’s new “unmanned retail and tea partnership store initiatives,” according to the research firm. Citron Research estimates that Luckin shares could nearly double to around $60 per share.
Barrons and InvestorsPlace also published positive long-term articles featuring Luckin Coffee, which further points to growing investor sentiment. The coronavirus has given investors an opportunity to get into the high-growth Chinese coffee company, which is currently battling it out with Starbucks in the country.
Currently, Luckin has more locations than Starbucks in China and may be looking to add thousands of additional stores in order to keep up with demand. Luckin’s :model of often-unmanned stores and app-focused checkout procedures both suggest operating profit margins at maturity should be quite attractive,” according to InvestorPlace.
Overall, Luckin Coffee has been badly beaten down in the wake of the coronavirus outbreak in China. Despite fears of a short-term to the company’s earnings and growth, analysts continue to see long-term potential out of LK. The charts continue to support the analysts’ theory that a bullish reversal is imminent. In the end, the Chinese growth story continues to remain intact and this pullback appears to be a potential buying opportunity.
Disclaimer: The author is long LK, but Spotlight Growth has no positions. Neither party has any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.