Goldman Sachs has initiated coverage on Luckin Coffee Inc. with a Buy rating, stating that China's largest ready-to-drink coffee brand demonstrates a robust competitive moat despite intense price competition, with significant room for further store expansion in the mainland market. Potential improvements in profitability and shareholder returns are seen as additional positive catalysts.

The investment bank set a 12-month price target of $49 for Luckin Coffee, implying an upside of approximately 61% from the current share price of $30.51. This valuation is based on a 2026 estimated price-to-earnings ratio of 21, with a 10% discount applied for its over-the-counter market listing. Goldman Sachs believes Luckin Coffee has substantial potential to increase its market share in China's mainland ready-to-drink beverage market, leveraging its leading scale and digital capabilities, and views its target of 55,000 stores as achievable.

Revenue and non-GAAP net profit for Luckin Coffee are projected to grow at a compound annual rate of 19% and 26%, respectively, from 2025 to 2028. This growth is expected to be driven by store network expansion, margin recovery as delivery platform subsidies normalize, and continued operational efficiency gains. Furthermore, as the company is anticipated to turn its accumulated deficit into an accumulated surplus by 2026, the potential for shareholder returns is expected to open up. Luckin Coffee announced a $300 million share repurchase program in April 2026, representing about 3% of its market value.

Ambitious Store Target Supported by Scale and Digital Prowess

There remains ample room for Luckin Coffee to expand its store footprint in mainland China. By the end of 2025, the company had over 30,000 stores in mainland China, capturing 28% of the gross merchandise value in the ready-to-drink coffee market, roughly double that of its closest competitor, Starbucks. Using the 35% market share held by 7-Eleven's City Café in Taiwan's ready-to-drink coffee market as a benchmark, Goldman Sachs estimates that a similar share for Luckin Coffee in mainland China would correspond to approximately 56,000 stores.

Three core factors underpin the feasibility of the 55,000-store target: First, Luckin Coffee's average price of around RMB 14 is only half that of Starbucks, equivalent to 0.4 times the average hourly wage in mainland China, providing a foundation for increased market penetration through high accessibility and value. Second, by guiding users to order through its proprietary app or mini-program, the company has amassed over 98 million monthly active transacting users and 450 million cumulative members, building powerful data-driven operational capabilities. Its 2025 R&D expenditure exceeded RMB 600 million, the highest among leading ready-to-drink beverage brands. Third, non-coffee products, including freshly made tea and fruit juices, already accounted for over 20% of total cup sales in 2025, helping to expand consumption scenarios and customer bases in lower-tier cities.

A bottom-up scenario analysis also suggests that, based on per capita consumption estimates across city tiers, Luckin Coffee's store potential in mainland China could reach approximately 69,000.

Price Competition Rationalizing, Clear Path to Margin Recovery

Luckin Coffee's non-GAAP operating margin peaked at 13% in 2023 before declining to around 11.5% in 2024-2025. This decline was attributed to an intense price war with competitor Cotti Coffee, which launched promotions across all product categories at RMB 9.9 and RMB 8.8 from 2023 to 2024, and the dilution effect on same-store sales growth from rapid store expansion.

The competitive landscape in 2026 is notably more favorable than during the trough of 2023-2024. Cutti Coffee discontinued its store-wide RMB 9.9 promotion in February 2026, with channel checks indicating a significant deterioration in its store-level profitability after subsidies were withdrawn, and it has recently seen a net closure of stores.

Concurrently, the normalization of delivery platform subsidies is expected to reduce the proportion of Luckin Coffee's delivery orders from the 35%-45% range seen in the third and fourth quarters of 2025 to around 30%. Combined with an anticipated high-single-digit percentage year-over-year decline in delivery cost per order, this is forecast to drive a positive year-over-year growth in Luckin Coffee's operating margin starting from the third quarter of 2026.

Looking ahead to 2028, Luckin Coffee's non-GAAP operating margin is projected to gradually improve to 14%, with a net profit margin of 10%. Its free cash flow as a percentage of revenue is also expected to improve to a high-single-digit percentage.

Overseas Expansion: Southeast Asia Holds Potential, US Market Requires Time

Goldman Sachs maintains a cautious stance on Luckin Coffee's overseas business, forecasting that international revenue will contribute only a low-single-digit percentage by 2028.

In Southeast Asia, Luckin Coffee currently operates approximately 82-83 stores in Singapore (company-owned) and Malaysia (via a franchise partnership with Hextar Industries Berhad). The size of the ready-to-drink beverage market in Southeast Asia is only about 0.3 times that of China. Even referencing the expansion trajectory of Mixue Bingcheng in the region, its overseas GMV remains only in the mid-single-digit percentage range of its China business, indicating relatively limited growth potential.

In the United States, Luckin Coffee faces higher barriers: Starbucks and Dunkin' collectively account for about two-thirds of the specialized ready-to-drink beverage store count; consumer habits of ordering digitally via apps are not yet established; and store opening processes are more complex and costly. Even with successful execution, achieving scale in the US market would require a considerable amount of time.