Luckin Coffee fell more than 70% on Thursday after revealing in a government file that its chief operating officer had made 2019 sales of around 2.2 billion yuan ($ 310 million).
“We were short thanks to Muddy Waters, who urged me to take a look at it in February,” said Chanos. He added that his fund covered the short position on pre-market operations on Thursday.
The 2.5-year-old company, which aspires to overtake Starbucks as China’s leading coffee chain, has warned investors not to rely on its financial statements and earnings releases for the nine months ended September 30.
“Luckin is a great example of – when people talk about banning short selling or restricting short selling. This stock was referred to by the community’s fundamental short sellers in January and February as fraud, “said Chanos. “This is one of the things that short sellers do: they are real-time financial detectives. “
Muddy Waters, chaired by founder and chief investment officer Carson Block, said on January 31 that he was missing Luckin after examining an 89-page report alleging that the company’s practices were fraudulent. Block gained prominence nine years ago when Muddy Waters released a negative report on the Chinese company Sino-Forest, which was eventually delisted from the Toronto Stock Exchange.
Chanos said he had looked at Luckin at the time and determined that he too would make a financial bet against the Chinese coffee chain.
He said Thursday that companies like Luckin represent an “overly aggressive” class of growth mega-companies that use sneaky methods to conceal expenses such as compensation by paying their employees in equity.
“We saw it this morning with Luckin: you have to avoid these Chinese companies like the plague,” said Chanos.
“How often do you burn investors in these companies that are just too good to be true?” Growing from 40% to 50% per year, with all kinds of strange transactions with affiliates. Variable interest entities based in the Cayman Islands. .. ” he added.
Chanos warned CNBC viewers Thursday against the buildup of “virus stocks” that may have been boosted by the temporary foreclosure of COVID-19.
“One area I would like to warn people about, for example, is the virus stock,” he told Halftime Report host Scott Wapner. They “are doing well right now in this forced lock. Many of these companies are really not structural growth stocks that trade 30, 40, 50 times their earnings because they will do well in the first and second quarters of 2020. “
He named Zoom Video, Teladoc and Clorox as companies that saw their sales explode amid the home trend. Zoom Video and Teladoc shares climbed 85% and 94% this year respectively.
– Amelia Lucas of CNBC contributed to the report.
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