Shares of recent IPO Luckin Coffee (NASDAQ: LK) are surging -- up nearly 10% in early morning trading and still up a healthy 8.6% as of noon EDT.
Continue Reading Below
Why? As Barron's reported over the weekend, "two sovereign-wealth funds and an American financial giant recently said they are large shareholders in the so-called Starbucks of China."
According to the magazine, Caron Investments -- a subsidiary of Singaporean sovereign wealth fund GIC Private Ltd. -- has revealed that in 2018, before Luckin's IPO on the Nasdaq, it bought $45 million worth of its preferred stock, which has since been converted into common shares constituting a 13% stake in the company. Combined with a 0.6% stake separately owned by GIC Private, the sovereign wealth fund now owns more than 13.6% of the coffee house chain.
Barron's also noted that the Qatar Investment Authority, another sovereign wealth fund, revealed Friday that it owns an 8.8% stake in Luckin; and Capital Research Global Investors, part of the Los Angeles based Capital Group Companies, owns 15.6% of Luckin.
Add it all up, and these three entities control 38% of Luckin. But should this really make a difference to individual investors who own smaller stakes?
After all, someone has to own those shares. Sure, the fact that ownership is heavily concentrated among three entities could become significant if one or more of them decided to try to buy more shares (to secure control over the company). But it can also become significant if one or more of these investors loses confidence and begins selling its stake, flooding the market with unwanted shares.
The rewards and risks from this revelation seem pretty equally balanced. They certainly don't add up to any compelling reason to buy Luckin stock today.
10 stocks we like better than Luckin Coffee Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Luckin Coffee Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019