Shares of Luckin Coffee, Chinese coffee retail chain, rose 15.6% to $36.24 in afternoon trading on Tuesday, closing at $36.63 after hours.
The company was the target of a short attack that caused shares to fall by 27% on Friday after Muddy Waters, a firm known for its bearish bets on air stocks, questioned the legitimacy of some of Luckin’s recent metrics. Luckin issued a statement in response, saying, “The company today responds to the misleading false allegations contained in an anonymous report made public on January 31, 2020. The report was made public by a short seller who may have profited from it.”
Muddy Waters released an 89-page report on Luckin Coffee concluding that Luckin’s average store inventory data was inflated by 69% in the third quarter of 2019 and 88% in the fourth quarter of 2019. They also noted that Luckin overstated its advertising spending in the third quarter of 2019 by more than 150%.
Luckin’s share price could double and eventually hit $60 after it overcomes the negative impact of the coronavirus outbreak and the broad bearish bets on its shares, according to Andrew Left of hedge fund Citron Capital.
Luckin was recently forced to temporarily close about 200 stores in Wuhan due to the pandemic.