Is Chegg Stock A Buy?

Paying for college has always been a challenging financial goal, and families often implement strategies as soon as children are born.

Unfortunately, all but the most fortunate students are still falling short when it comes to covering the tuition and related expenses of higher education.

Though parents and grandparents might have been able to work their way through college and graduate with minimal debt, the rising cost of education has changed the rules for today’s students.

This situation presents an opportunity for entrepreneurs who offer solutions to ease this financial burden – and a chance for investors to support the organizations who are making this happen. As a leader in this space, Chegg is getting a lot of attention, but is it the best choice for your portfolio?

The Challenges Facing Today’s Students

From 1989 to 2016, the total cost of a four-year degree has doubled, even after adjusting for inflation. The average bill is $26,120 each year, for a four-year total of $104,480.

Students who attend private colleges and universities face bills that are even higher – often $40,000 or more per year. The change from 1989 to 2016 represents an increase of 2.6 percent per year.

Since wages only grew 0.3% per year during the same period, many students can no longer afford higher education without relying heavily on student loans.

Federal student loan debt presents another set of obstacles for students once they graduate from college. Instead of purchasing homes and starting families, they are struggling to repay massive monthly bills.

As of June 30, 2018, 42.2 million Americans owed $1.41 trillion in federal student loans. This averages approximately $33,460 per person. Many high school graduates are foregoing additional education to avoid this type of financial burden.

Those that choose to pursue a degree are carefully examining every possible option for saving money along the way. That’s where Chegg comes in.

What Does Chegg Do?

If you aren’t a student, family member, or educator, chances are you have never heard of Chegg [NYSE: CHGG]. However, in academic circles, this company is very popular.

At first, Chegg started off selling textbooks at discounted rates, and it was one of the first to adopt a textbook rental model that allows students to save big on the supplies they need for class. Later, it developed an expansive collection of digital books, which reduces student costs even further.

The business grew to include a wide range of academic tools and support. For example, Chegg [NYSE: CHGG] offers 24-hour online homework help, digital support for exploring and applying to college, specialized assistance with securing internships, and coaching for graduates in search of their first job.

Best of all, it has an expansive set of resources for those in need of financial assistance to attend the university of their choice, and it offers detailed information on finding and applying for grants and loans. Basically, it is one-stop-shopping for the many phases of student life.

Going forward, Chegg [NYSE: CHGG] is working on bringing younger students into the organization with tutoring and materials geared towards middle-schoolers and high-schoolers. This new line of products has been well-received, which indicates a promising future for the organization as a whole.

Is Chegg Stock a Buy?

Chegg’s leaders have demonstrated their expertise in identifying inefficiencies in the processes associated with education. They have developed effective solutions that address the inefficiencies, adding substantial value along the way. With no end to the rising cost of education in sight, all signs point to the company’s continued success.

Chegg serves a niche market, but the risks facing the business – and its investors – aren’t that unusual. One of the biggest is competition. Companies like Amazon have the resources and expertise needed to present a formidable challenge to Chegg. C

reation of a competing service could be devastating, as Amazon would be able to offer similar services at a lower price, along with additional benefits unavailable to Chegg clients.

However, the chances of a large retailer mounting an effort to expand into this space organically seem low. It is more likely that Amazon or another large retailer would seek to acquire Chegg instead, which could be profitable for Chegg investors.

Another significant concern for Chegg is its business model. Most products are accessed through Chegg Services, which requires a subscription. Since students are often facing limited financial resources, renewals aren’t guaranteed, and there is very little room for increasing subscription prices.

Finally, some analysts are concerned with the cost of Chegg stock. In just five years, it has gone from around $7 per share to an impressive $40 per share. That means solid profits for those who bought shares in 2014, but some question whether there is still room to grow.

Is Chegg Stock a Buy: The Bottom Line

Though some investors and analysts have concerns about Chegg’s ability to continue returning value for shareholders, a majority believe that this company is a solid buy. There is on-going demand for the services provided, and there are no competitors offering a platform as robust.

Lately, the news has been focused on scandal related to wealthy families buying their students’ admission into top colleges and universities, which illustrates a critical point for those considering Chegg: managing the process of higher education is difficult, and everyone can benefit from expert advice. Chegg fills the need with high-quality services at an affordable price, leveling the playing field for all students. As a result, it is quite likely to continue on its trajectory of growth and expansion in coming years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.