As father to both a kindergartner and a four-year-old who wants to learn like her big brother, I have suddenly been thrust into the role of at-home educator. Thankfully, I have some help; my wife is an actual educator, but as a counselor at a high school she has her hands full these days. So we are splitting the teaching duties, frequently tag-teaming in and out as we ping-pong between our roles as full-time workers, parents, and now, educators in this age of quarantine. We’re doing our best. But any outside resources help. Which is why I’m not surprised that Chegg stock just zoomed to new all-time highs after earnings.
If you’re not familiar with Chegg (CHGG), it’s an online educational resource, providing digital and physical textbook rentals, tutoring, 24/7 homework help, and other student services. On Monday, the California-based company announced earnings that blew analyst estimates out of the water: $0.22 earnings per share (vs. $0.17 expected) and $132 million in revenue (vs. $123 million expected). Those top- and bottom-line beats, coupled with higher-than-expected guidance for the current quarter, sent Chegg stock soaring more than 28% in early Tuesday trading. At 56 per share, CHGG is (as of this writing) $12 clear of its previous all-time high, or roughly 27% higher.
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Chegg is a mid-cap stock, with a market cap in the $6.5 billion range. But it’s not as volatile as most mid caps, with a beta of a mere 0.94, meaning it’s less volatile than the average stock regardless of size. As you can see from the chart, CHGG stock did fall quite a bit in February and March like most stocks, dipping as much as 37% at its nadir. But it quickly bounced back, and is now trading at new heights.
A pullback is all but guaranteed after such a huge gap up. But given the sunny outlook for the current quarter (the company issued guidance of $135 million to $137 million in revenue for the second quarter), it’s unlikely Chegg stock is about to come crashing back to earth.
Like my son’s school, most schools across the country have gone online for the remainder of the school year. It’s possible that could continue into the fall, though I certainly hope not for my (and my wife’s) sanity. No one knows for sure. At a minimum, online education is in more demand now than it’s ever been, and will be for at least another month.
I’ve never used Chegg; kindergartners don’t use textbooks, and my son likes doing his homework assignments with as little help as possible. But I’m aware of the company now; I’d never heard of it before. It’s not quite an overnight household name like Zoom (ZM), which has become part of most people’s daily routine as they communicate with the outside world (i.e. anyone who doesn’t live in their house). But with more than three million subscribers, Chegg is quickly gaining mainstream acceptance, which means it’s squarely on institutional investors’ radar.
I’d wait to buy on the next big dip, perhaps to any price below 50. Given the momentum, however, after Tuesday’s massive gap up on huge trading volume, and the general trend in online education, I think there’s a good chance Chegg stock has a much longer rally ahead of it.
Hopefully that rally outlasts my career as an unpaid part-time teacher.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!