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When Will Luckin Coffee Inc. (NASDAQ:LK) Become Profitable?

Simply Wall St

Luckin Coffee Inc.'s (NASDAQ:LK): Luckin Coffee Inc. engages in the retail sale of freshly brewed drinks, and pre-made food and beverage items in the People's Republic of China. The company’s loss has recently broadened since it announced a -CN¥3.2b loss in the full financial year, compared to the latest trailing-twelve-month loss of -CN¥3.7b, moving it further away from breakeven. Many investors are wondering the rate at which LK will turn a profit, with the big question being “when will the company breakeven?” I’ve put together a brief outline of industry analyst expectations for LK, its year of breakeven and its implied growth rate.

Check out our latest analysis for Luckin Coffee

Consensus from the 7 Hospitality analysts is LK is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of CN¥2.3b in 2021. So, LK is predicted to breakeven approximately 2 years from today. What rate will LK have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 106%, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.

NasdaqGS:LK Past and Future Earnings, August 19th 2019

I’m not going to go through company-specific developments for LK given that this is a high-level summary, though, bear in mind that by and large a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before I wrap up, there’s one aspect worth mentioning. LK has managed its capital judiciously, with debt making up 5.4% of equity. This means that LK has predominantly funded its operations from equity capital,and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of LK to cover in one brief article, but the key fundamentals for the company can all be found in one place – LK’s company page on Simply Wall St. I’ve also compiled a list of essential factors you should further examine:

  1. Valuation: What is LK worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether LK is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Luckin Coffee’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.