After a 130% rise since the March 23 lows of this year, at the current price of around $80 per share we believe Chegg Stock (NYSE: CHGG), which is a direct-to-student learning platform, has reached its near term potential. Chegg’s stock has rallied from $28 to $80 off the recent bottom compared to the S&P which moved 51% over the same time period. Strong demand for the direct-to-student learning platform, as well as strong subscriber growth, which grew 67% in Q2 2020 (ending June), has led to the stock beating the overall markets. Moreover, Chegg stock is a large 388% higher than levels seen in early 2018, over two years ago. Chegg’s stock has fully reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. In fact, the stock is an additional 75% ahead of its February peak and nearly 100% up since the beginning of 2020. Chegg is trading close to its all-time high and the stock seems to be fully valued as of now. Our dashboard, ‘What Factors Drove 388% Change In Chegg’s Stock Between 2017 And Now?‘ provides the key numbers behind our thinking, and we explain more below.
Some of the stock price rise of the last 2 years is justified by the roughly 61% growth seen in Chegg’s revenues from $255 million in 2017 to $411 million in 2019, the effect of which was partially mitigated by a 19% increase in shares outstanding. Taken together, this helped revenue per share surge by 35% from $2.55 in 2017 to $3.45 in 2019.
Finally, Chegg’s P/S multiple grew from 6.4x at the end of 2017 to 11x by the end of 2019. While the company’s P/S has now increased to 23x, it seems to be overvalued when the current P/S is compared to levels seen in the past years. P/S of 11x at the end of 2019 and 10x as recently as late 2018. We believe there is a possible downside for Chegg’s multiple when compared to levels seen over the recent years, and the stock is unlikely to see much upside after the recent rally and the potential weakness from a recession-driven by the Covid outbreak.
- Despite Sales Growth, NortonLifeLock Stock Has Failed To Outperform The S&P- Here’s Why
- What To Expect From Snap Stock?
- What’s Next For Activision Blizzard Stock?
- Pick Either UPS Stock Or Its Peer – Both May Offer Similar Returns
- What’s Next For CVS Health Stock After An Upbeat Q2?
- Meta Platforms Stock Missed The Consensus In Q2, Where Is It Headed?
How Is Coronavirus Impacting Chegg’s Stock?
The global spread of coronavirus has affected industrial and economic activity across the world. However, the lockdown has actually been a blessing a disguise for a bunch of companies, and Chegg is one of them. Chegg’s business has received a boost due to the outbreak of coronavirus as educational institutions had to shut down to mitigate the spread of the virus. As a result, Chegg saw a substantial increase in new subscribers, as well as witnessed an increase in engagement from its existing subscribers. Chegg reported a robust performance in its Q2 2020 (ending June) results, with the company’s revenues growing by 63% to $153 million while its subscriber count surged to 3.7 million, an increase of 67% y-o-y. Moreover, the company expects its subscriber growth to remain upbeat in FY2020. While traditional educational companies are suffering due to the outbreak of the virus, Chegg, with its digital education model, is clearly benefiting from this pandemic. However, with things potentially returning to normal in the not-too-distant future, it is unlikely that Chegg could continue to grow at its current pace.
So, Chegg’s stock might not witness a rise from the current level. But, what if instead you are looking for a more balanced portfolio? Here’s a top-quality portfolio to outperform the market, with a 170% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.