Luckin Coffee stock price: technicals point to more upside

Luckin Coffee (LKNCY) stock price has been one of the best-performing Chinese ADR this year as investors cheer the company’s turnaround and growth. The shares jumped to the year-to-date high of $36.95. At its peak, the company has jumped by more than 85% from the lowest level in June. It has soared by over 550% from the lowest level in 2022.

Luckin Coffee growth is continuing

Luckin Coffee is one of the biggest and fastest-growing coffee chain in China, where it operates more than 10,000 stores. In the last quarter, this growth continued as the country added over 1,400 stores. 

The company’s goal is to become a leading coffee chain with a global presence. Most notably, it aims to replicate the success of Starbucks, the biggest coffee chain in the world. Starbucks has over 6,500 stores in China and employs over 60,000 workers.

The most recent results showed that Luckin Coffee is achieving this goal. Its net revenue jumped by 88% to RMB 6.2 billion as the average number of monthly transacting customers jumped by 107% YoY to over 43.1 million. 

Luckin Coffee is also innovating as it seeks to boost its revenue per user. It unveiled a new alcoholic drink priced at about $5.20. It did that by partnering with Kweichow Moutai, a leading beer company. Historically, beer sales tend to have higher margins and tend to attract more young customers.

The key headwind for Luckin Coffee is that the Chinese economy is slowing. Recent data shows that retail sales have stalled while the real estate sector is on life support. Country Garden, one of the biggest companies is collapsing.

The property sector is important for the Chinese economy since it accounts for more than a third of the GDP. Most people in China have their wealth tied in real estate. Also, the youth unemployment rate has jumped to historic highs. 

Therefore, there is a likelihood that Luckin Coffee will have slow growth this year. Another risk is that Starbucks is investing heavily in the country.

Luckin Coffee stock price forecast

Luckin chart by TradingView

The daily chart shows that the Luckin Coffee share price has been in a strong bullish trend in the past few years. It recently moved above the important resistance point at $32.22, the highest swing on March 3rd. By moving above that level, the stock invalidated the double-top.

Most importantly, Luckin Coffee stock price has formed a break and retest pattern, a sign of a bullish continuation. It has remained above the 50-day and 100-day moving averages. Therefore, the outlook for the stock is bullish, with the initial resistance level to watch being the YTD high of $36.90. A move above that will see it jump to $50. This view is in line with my previous Luckin forecast.