PreMarket Prep Stock Of The Day: Chegg Inc.

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Long-term investing can be difficult, especially when volatility ramps up. And investors don't always use the tool of common sense, including this author. 

During our daily PreMarket Prep Show, we discuss stocks we refer to as COVID-19 plays. In other words, companies that benefit from the lockdown or stay-at-home policies in force across the world.

While we have discussed at length stocks such Amazon.com, Inc. AMZN, Zoom Video Communications ZM and Teladoc Health Inc. TDOC, one that we omitted is blasting to new all-time-high. That company is Chegg Inc. CHGG, the PreMarket Prep Stock Of The Day.

What Chegg Does

Chegg Inc. is an American education technology company based in Santa Clara, California, with over 3 million subscribers. The company provides digital and physical textbook rentals, online tutoring and other student services.

With schools of all levels shuttered across the world, educators are searching for ways to continue with education and not allow the pandemic to disrupt the year-to-year process.

Chegg's Long-Term Performance

Chegg was in a trading range from November 2013 through April 2017 from $3.15 to $9.07, with the majority of the price action pivoting on the $8 level. When the issue broke out to the upside in May 2017, it never looked back.

The slow but steady rally was only interrupted by a few minor retreats and continued until July 2019, when it finally peaked at $48.22. After reaching that elevated level, it had a sharp decline in the fall but ended the year at $38.77.

So Goes The Market, So Goes Chegg

Before the market imploded in March, the issue was in striking distance of its all-time high. Chegg began to weaken in late February and its decline accelerated in March. It bottomed out ahead of the broad market on March 18 at $25.89. That low comes in just above its December 2018 low of $25.16.

It rebounded back with the broad market and was back in all-time-high territory ahead of it first-quarter report, ending Monday's session at $43.79.

Chegg Posts Q1 Beat, Solid Subscription Increase, Raises Guidance 

After the close on Monday, Chegg reported a first-quarter EPS beat of 7 cents and a sales beat of $8.87 million. The company raised its second-quarter sales guidance and announced 35% year-over-year subscription growth.

That triple whammy has sent the shares into orbit. The stock was up 36.08% at $59.59 at the time of publication Tuesday.

Chegg Moving Forward

The 15% short interest in the issue as of Monday's close could be adding to the rally.

After nearly a $10 higher open, Chegg had only a 60-cent retreat Tuesday before continuing its move higher. Therefore, not only were the shorts coming in were under siege, but any trader or investor who took a short off the open was underwater immediately.

The rally is taking place on much higher volume, as 21 million shares have traded as of 1 p.m. compared to a 20-day average of 2.6 million. 

At this point, it may be a daring long entry, using today's low as a possible exit point. However, shorting the issue at this level with no identifiable out would be an even riskier trade.