Chegg Stock Price Falls 36% – Time to Buy CHGG Stock?

The stock price of California-based Edtech company Chegg (CHGG) was almost 36% lower in US premarket price action today. The stock has lost almost a third of its market cap this year and is down over 45% from the 52-week highs that it hit in February.

The slump in CHGG stock looks set to continue further and it might hit a new 52-week low today looking at the pre-market carnage. What’s the forecast for Chegg stock and is it a good buy after the slump?

Chegg stock technical analysis

Chegg stock is looking bearish on the charts and trades below the key moving averages like the 50-day SMA (simple moving average), 100-day SMA, and 200-day SMA. It looks set to fall below the 10-day and 20-day SMA also today. The 14-day RSI (relative strength index) of 44.6 is a neutral indicator. RSI values below 30 signal oversold positions while values above 70 indicate overbought positions.

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CHGG third-quarter earnings

Chegg reported revenues of $171.9 million in the third quarter. While revenues increased 12% as compared to the corresponding quarter last year, they were below the $174.5 million that analysts were expecting. The company reported an adjusted EPS of $0.20 which was in line with estimates. While the earnings did not look too bleak to trigger a nearly 30% crash, the management’s commentary on the education industry’s outlook and the fourth-quarter guidance was quite gloomy.

Chegg expects to post revenues between $194-$196 million in the fourth quarter which was well short of the $240 million that analysts were expecting. The company’s subscriber growth in the quarter was also below estimates.

Chegg lowered its guidance

Chegg had to lower its 2021 guidance. Commenting on the earnings, CHGG CEO Dan Rosensweig said, “In late September it became clear to us that the education industry is experiencing a slowdown that we believe is temporary. This industry-wide dynamic was unanticipated and is a direct result of the COVID-19 pandemic.”

The company blamed increased employment opportunities and fatigue for fewer enrolments this semester. It also said that even those who have enrolled are taking fewer classes. However, the company added that “We believe this is a post pandemic impact that will affect this school year but is not sustainable for higher education long term.”

CHGG stock forecast

Wall Street analysts were very bullish on Chegg stock before the third-quarter earnings release. Of the ten analysts polled by TipRanks, nine rated it as a buy while one had a hold rating. None of the analysts rated the stock as a sell. Its median target price of $100.25 is a premium of almost 60% over yesterday’s closing prices. However, after the lower guidance and the tepid outlook, Wall Street analysts might take a fresh look at CHGG stock.

To be sure, analysts had been turning bearish on CHGG stock in October only. Morgan Stanley had lowered the stock’s target price from $115 to $88 while maintaining its overweight rating. KeyCorp had also lowered its target price from $115 to $95. However, in September Needham maintained its buy rating and $120 target price on CHGG.

Chegg stock long term forecast

Chegg is facing short-term headwinds which the management also talked about during the earnings call. However, the company’s long-term outlook looks bullish. The Edtech industry is among the most compelling long-term investment opportunity. Also, while Chegg’s growth in North America is witnessing a slowdown, the company is still growing fast in international markets.

Commenting on the international markets, CHGG said “While still early, international is clearly becoming a meaningful part of our business, and we have already exceeded our target of 1 million international subscribers.” Over the long term, the company expects international markets to become larger than the US market.

Should you buy CHGG stock?

Chegg has a strong balance sheet and ended the quarter with $2.6 billion of cash and cash equivalents. The company has also doubled the share buyback program to $1 billion. Chegg stock looks reasonably valued at trades at an NTM (next-12 months) PE multiple of 37.8x. The valuation multiple is set to fall after the crash today.

All said, Chegg stock’s long-term outlook looks intact despite the recent headwinds. If you are looking to buy an Edtech stock to hold for the long term, CHGG would fit the bill. Today’s crash looks like an opportunity to buy this quality stock at attractive valuations.

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