Online learning is on the rise.
Piper Sandler initiated coverage of textbook rental platform Chegg on Wednesday with a $90 price target and an overweight rating, saying the company was a “leader in digitizing the student experience” and would be a “primary beneficiary” of the shift to online education.
Chegg is one of the top-performing online education services stocks year to date, followed closely by online curriculum maker K12. Chegg’s shares fell 2% in early trading Thursday to $74.70 after closing 1% higher on Wednesday.
Some quick stats:
All five are killing the S&P 500’s nearly 8% gain. But some — especially Chegg — have had huge moves, Miller Tabak chief market strategist Matt Maley noted in an interview Wednesday on CNBC’s “Trading Nation.”
Chegg started August hot, up over 150% from its March lows and “very, very overbought on a technical basis,” Maley said. Shares are down about 7% since and have now worked off their overbought condition, both positive signs, he said.
“One thing I’m a little worried about [is] it has formed what could be seen as a head-and-shoulders pattern,” he said, pointing to Chegg’s technical chart.
While Chegg is still holding above the pattern’s “neckline” around $70 and should continue to do so, a break below it could be dangerous, Maley warned.
“Whenever you break a neckline of a head-and-shoulders pattern, that’s one of the most bearish developments you can see,” he said. “I will say, though, a failed head-and-shoulders — in other words, when you bounce off the neckline — is one of the most positive moves you ever see in technical analysis. So, we’re kind of at a key level right now.”
“If it breaks below that line just below 70, you’d want to step back or use a stop at that level,” he added. “However Chegg trades over the next week or two is going to be very important to how it trades for the rest of the year.”
Another stock Maley had his eye on was Pluralsight, a company offering virtual training courses for a variety of technical and creative skills.
The stock recently broke above a trend line going back to 2019 — positive sign No. 1 — and after pulling back slightly, held that line, meaning old resistance became new support, another sign of strength, Maley said. The stock is now approaching its early-June highs.
“If it can break above 22, it’ll follow up that broken trend line to the upside with a nice higher high, so, that’ll be doubly positive for the stock. I think it’ll get another leg of momentum higher,” the strategist said. “So, I like both stocks, but I think Pluralsight’s the one that looks best to me on the charts.”
John Petrides, portfolio manager in the wealth division of Tocqueville Asset Management, has been avoiding most online-learning stocks for a reason.
“Once we get to a normalized society where the vaccine is distributed and we feel comfortable again and school goes back to a normal situation, I do think some of the air is going to get let out of this group,” he said in the same “Trading Nation” interview. “I’d like to wait until the hype here dies down.”
Instead, Petrides gets his education exposure from an overseas name: New Oriental Education & Technology Group, a Chinese private schooling provider.
“[China’s] population is four times the size of the U.S. and mobility and the use of technology and online education is definitely longer in the growth pattern than it is in the United States,” Petrides said. “So, I would go with EDU, a stock that I own personally, to play this space. EDU has been around for significantly longer than these companies have, at least from a publicly traded standpoint.”
Disclosure: Petrides owns shares of New Oriental Education & Technology Group.