Why investing in CHEGG may not be a wise move

Why investing in CHEGG may not be a wise move

Table of Contents:

1. Introduction
2. History and Background of Chegg
3. Chegg's Mission and Services
4. The Problematic Stock Performance of Chegg
   1. Terrible Long-term Charts
   2. Recent Performance
5. Earnings of Chegg
   1. Inconsistencies in Reported Earnings
   2. Financials and Potential Investment
6. High Price to Earnings Ratio
7. Chegg's Reputation as a Cheating Site
   1. Academic Integrity Concerns
   2. Investor Considerations
8. The Risks of Chegg's Line of Business
   1. Challenges in the Educational Sector
   2. Potential Disruptions in the Market
9. Formidable Competition Faced by Chegg
10. Conclusion

The Top Six Reasons Why Chegg is Not a Smart Investment

Chegg, a textbook rental and educational services company listed on the New York Stock Exchange, presents itself as a leading student-first interconnected learning platform. However, there are several reasons why investing in Chegg may not be a wise decision. In this article, we will explore the six primary reasons why Chegg is not a buy, considering its problematic stock performance, inconsistent earnings, high price to earnings ratio, reputation as a cheating site, risks associated with its line of business, and formidable competition. These factors should be taken into account when evaluating the investment potential of Chegg.

Reason 1: Terrible Long-term Charts

One of the initial concerns about investing in Chegg revolves around its long-term performance. While its stock initially showed promise at its IPO in 2013, with approximately a 145% return on equity over nine years, the stock has experienced significant volatility. In recent years, the stock's performance has been less impressive, with a sharp decline in value. Those who purchased shares near the stock's high point of $113.51 in February 2021 would have experienced substantial losses. This inconsistency in performance raises questions about the stability and future prospects of the company.

Reason 2: Recent Performance

A closer look at Chegg's recent performance reveals a decline in value over shorter periods. Holding the stock for the past five years would have yielded an annual return of around 10%, assuming the investment was made at an opportune time. However, for those who bought the stock near its high point, the losses have been significant. Holding the stock for the past 52 weeks would result in a substantial 72% loss, and year-to-date, investors would be down approximately 28%. These recent trends suggest that investing in Chegg might not offer the desired returns.

Reason 3: Inconsistencies in Reported Earnings

When examining Chegg's earnings, discrepancies arise, making it difficult to determine its financial health accurately. Financial websites like Google and Yahoo display conflicting information regarding the company's profitability. Yahoo's financial page shows consistent annual losses, while Google's reported earnings per share indicate some profitable quarters. Additionally, Chegg's website presents varying financial numbers, including both losses and small gains. To make informed investment decisions, potential investors should thoroughly examine financial statements and conduct extensive research.

Reason 4: High Price to Earnings Ratio

Chegg's price to earnings (P/E) ratio raises concerns about the company's valuation and sustainability. With a P/E ratio of 72.69, the company's stock appears to be overvalued. While a positive P/E ratio suggests profitability, such a high ratio indicates an inflated stock price. Sustaining such a valuation may prove challenging for Chegg in the long run, further adding to the skepticism surrounding the stock.

Reason 5: Reputation as a Cheating Site

Chegg's business model, which involves providing academic assistance to students, raises questions about its reputation as a cheating site. The company has faced criticism, particularly during the COVID-19 pandemic, for facilitating academic dishonesty among college students. While investing decisions should primarily focus on financial indicators, investors may need to consider the practical implications and potential consequences of supporting a company that aids cheating. This aspect offers another layer of complexity for investors to evaluate.

Reason 6: Risks of the Educational Industry

Investing in educational services, particularly in the United States, can be risky due to various factors. For-profit colleges have faced regulatory crackdowns and closures, and even reputable institutions may struggle to generate sustained profits from educational services. Chegg's reliance on a monthly subscription model and its potential competition from free online resources could pose challenges in monetizing their services effectively. Furthermore, the industry has experienced disruptions in recent years, indicating the need for caution when considering investments in this sector.

In conclusion, investing in Chegg may not be a smart decision for several reasons. The stock's inconsistent performance, conflicting earnings reports, high price to earnings ratio, reputation as a cheating site, risks associated with the educational industry, and competition from established giants like Amazon and Google all present significant concerns. As with any investment, thorough research, analysis, and consideration of these factors are essential to make informed decisions about the potential risks and rewards of investing in Chegg.