Why Is Chegg (CHGG) Stock Rocketing Higher Today
What Happened:
Shares of online study and academic help platform Chegg (NYSE:CHGG) jumped 18% in the morning session after Morgan Stanley analyst upgraded the stock from Underweight (Sell) to Equal Weight (Hold). The analyst believes the company has a reasonable potential to deliver "solid free cash flow generation" given a 2x EBITDA multiple, which is considered "a more balanced risk/reward ratio."
Is now the time to buy Chegg? Access our full analysis report here, it's free.
What is the market telling us:
Chegg's shares are not very volatile than the market average and over the last year have had only 25 moves greater than 5%. Moves this big are very rare for Chegg and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 29 days ago, when the stock gained 28.8% on the news that the company announced a new restructuring plan, which also involves refocusing on its core audience (mostly Students) in a Shareholder Letter shared with the public. This effort will involve the provision of more individualized support to learners via a single platform enabled with AI (artificial intelligence) capabilities. The restructuring effort includes the layoff of 441 employees, which represents 23% of the company's global workforce.
David Longo, Chegg's Chief Financial Officer added that, "We expect the restructuring will result in non-GAAP expense savings for 2025 of $40 million - $50 million. For 2025, we remain committed to our goal of 30%+ Adjusted EBITDA margin, and we believe we can deliver at least $100 million in Free Cash Flow. We are also reiterating our previous second-quarter guidance that we provided on April 29, 2024."
Overall, the update highlights the company's focus on improving growth and profitability, with some of the cost reduction efforts highlighted likely to positively impact the bottom line in the near term.
Chegg is down 68.1% since the beginning of the year, and at $3.59 per share it is trading 68.5% below its 52-week high of $11.41 from December 2023. Investors who bought $1,000 worth of Chegg's shares 5 years ago would now be looking at an investment worth $80.08.
When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.