In less hectic times, most people associated Chegg (NYSE:CHGG) with a cheaper, convenient platform to buy college textbooks. As well, the company had started to dive into the online tutorial industry, which was always going to be popular. It’s not as if all college students have normal schedules. But then the novel coronavirus pandemic came along and suddenly, CHGG stock found itself as one of the most relevant investments of 2020.
To be sure, the road hasn’t been a consistent one. Like virtually all other publicly traded assets, CHGG found itself tumbling during the March doldrums. At the time, we just didn’t know how this crisis was going to pan out. But as Americans — resourceful as we are — began adapting to the new normal, Chegg found itself near the epicenter of the education debate.
Yes, education is important but is it worth risking young people’s lives? With online platforms like Chegg, families could still enjoy a hybrid learning experience: in-person education whenever possible and online lessons in situations that are riskier.
On many levels, the pandemic has been a positive for CHGG stock. Essentially, the underlying company demonstrated the feasibility of contactless education. But on the other hand, the shift to online learning has been dramatic. As The Washington Post pointed out in August, this experiment hasn’t gone down so well for millions of students.
However, the bullish argument for CHGG stock is that Americans will adapt to the new normal. Just like our post-9/11 society, the disruption is severe in the near term. Further out, our resourcefulness allows us to manage new realities. And that may be the case for Chegg with this pandemic.
CHGG Stock Linked Closely to Coronavirus Cases
As I mentioned earlier, when the novel coronavirus was no longer a bug on a cruise ship docked in a foreign country but was spreading in our territory, the volatility was swift and intense. Certainly, CHGG stock was not spared the initial round of red ink.
But after the early shock wore off, Wall Street recognized that the coronavirus wasn’t the death-on-contact virus that many once feared. Instead, we could technically live with the virus, so long as we practiced responsible mitigation protocols. Roughly from around late March to early April, the price action of CHGG stock generally tracked that of new coronavirus cases in the U.S.
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Interestingly, it’s not just an “eyeball” correlation that we’re talking about here. Rather, from the beginning of March to Oct. 9, the correlation coefficient between CHGG stock and Covid-19 cases registered as 74%. That indicates a strong direct relationship between the two trends.
Of note is that Chegg stock has enjoyed a conspicuous lift in recent weeks, while Covid-19 cases have been rising since Sept. 8, according to data from the Centers for Disease Control and Prevention. This tells me that CHGG is currently a rational investment. Basically, as coronavirus cases increase, demand for Chegg’s online educational services will likewise increase.
Of course, there is some risk involved with this narrative and that has to do with the virus’ trajectory. As White House health advisor Dr. Anthony Fauci — or whom members of the Trump administration apparently refer to as Dr. Faucet — stated months ago, a second wave is not inevitable. If we follow reasonable social distancing efforts, we can get this pandemic under control.
Furthermore, President Trump’s own illness could convince those believing in coronavirus conspiracy theories to mask up. Such actions could see a reduction in Covid cases, which would arguably make CHGG stock overvalued.
‘Corona’ Culture May be with Us for a Generation
Arguably, most Americans are under the assumption that by sometime next year, we’ll be done with this pandemic. I wouldn’t be too sure.
According to a research paper by European academics, the Covid-19 crisis could impose lingering effects on our society and economy. Juxtaposing the generational impact of the Spanish flu and in the case of the Black Death, a centuries-long impact, the new normal could last for several years.
“… the Spanish flu had long-lasting social consequences leading to a decline in social trust. We argue that this potentially resulted from the experience of social disruption and generalized mistrust which characterized the pandemic period.”
Pointedly, they also mention regarding the Spanish flu that “Measures of public health, general encouragement from the authorities and the media to avoid inter-personal contacts, and rumors about enemy spies spreading the infection beyond the lines as a kind of biological weapon created a climate of suspicion and mistrust.”
As you know, there’s a lot of suspicion and mistrust going on today, whether that is motivated by political, social or racial differences. This indicates that “corona” culture may be with us for perhaps a generation. Cynically, this gives CHGG stock a lengthy upside pathway.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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