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Chegg CHGG shares have skyrocketed 140% in the last year and are up about 6% in the last week to climb back toward their late January records at around $100 a share. The digital education company had been soaring before the pandemic as well, which means investors might want to dive deeper into CHGG stock ahead of the release of its Q4 FY20 financial results on Monday, February 8.
Chegg was founded as a discount textbook company for the digital age and that helped it stand out as Amazon AMZN gobbled up more market share from traditional bookstores. Since then, Chegg has expanded its offerings into a broader digital learning company that’s set up for far more long-term success in a world where most students, especially in college, do so much work digitally.
CHGG has transformed into a “direct-to-student learning platform” that offers online tutors, test prep, writing help, job and internship search platforms, and much more. The pandemic shined an even brighter light on the need for digital learning offerings, and it helped Chegg grow over the last several quarters.
Cleary, students of all ages hope they will be able to return to their normal routines soon, especially as the vaccine is rolled out. But no matter what happens, studying and learning outside of structured environments is taking place digitally, as students look for extra help and practice on platforms such as YouTube GOOGL.
On top of that, Chegg is positioning itself to capitalize on a world where people and institutions might reevaluate the current system, as college costs grow out of control. “We have always said that the future of education was inevitable; to become increasingly online, on demand, and more affordable,” CEO Dan Rosensweig said in prepared Q3 remarks.
Chegg has soared nearly 500% in the last three years to crush the tech sector’s 85%. But the stock has cooled down a bit, up just 18% in the last six months to lag the tech space. This might be good news for investors and could help it potentially breakout if it is able to impress Wall Street.
Plus, Chegg has regained its momentum heading into its upcoming report, closing regular trading Wednesday right below its highs at just under $100 per share. And the stock is not currently overbought in terms of the Relative Strength Index, with CHGG sitting at around 59—an RSI above 70 is often regarded as overbought, with any number below 30 considered oversold.
Moving on, remote schooling helped highlighted CHGG’s business, with sales up 64% in the trailing two quarters. Chegg’s services subscribers surged 69% in Q3 to 3.7 million and it has consistently topped our quarterly earnings estimates.
Looking ahead, Zacks estimates call for its adjusted Q4 EPS to climb 46% to $0.51 a share on 51% higher revenue. Overall, Chegg’s fiscal 2020 earnings are projected to climb 41% on 53% stronger sales to reach $628.3 million. This would see the company crush FY19’s 28% revenue expansion and FY18’s 26%.
Chegg is currently a Zacks Rank #3 (Hold) heading into its Q4 report, as its consensus earnings estimates have remained little changed recently. The stock could face some near-term selling pressure if investors decide to take home profits. And CHGG has traded pretty heavily following its release in two out of the last three quarters, as the price chart above shows.
With all of this in mind, some investors might want to consider Chegg as a longer-term play that trades in-line with its peer group at 16X forward sales and well below fellow pandemic standouts such as Shopify’s SHOP 39X.
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