Buy These 2 Popular Internet Software Stocks – December 9, 2022

There is always an abundance of stocks to choose from, but investing is often more successful and rewarding when investors understand the company’s business model and believe in the company themselves.

Here are two well-known companies in the Internet software industry that investors can be bullish on as the New Year approaches. The Internet software industry is currently in the top 24% of over 250 Zacks Industries.

Cheg (CHGG Free report)

Cheg (CHGG Free Report) is a significant investment on most fronts. Many investors are putting money aside for their children’s/grandchildren’s future education or even trying to complete a higher level of education themselves and are familiar with Chegg’s social education platform.

Chegg is a popular option for students and learners to study and understand their course material. The company rents and sells textbooks and provides electronic textbooks in addition to homework help and college admissions and scholarship services.

CHGG is currently landing a No. 2 (buy) Zacks rank with rising earnings estimates for fiscal 22 and 23.

Zacks Investment Research
Image source: Zacks Investment Research

CHGG’s earnings are now expected to fall -1% in 2022 to $1.28 per share, but that’s up 14% from $1.12 per share 90 days ago. FY23 earnings are expected to climb 7% to $1.38 per share, with earnings estimates also rising in the final quarter.

Sales are expected to decline -1% this year, but increase 7% in FY23 to $816.84 million. FY23 sales are on track to grow 199% over the past five years.

Chegg stock is down -9% year-to-date versus. The -18% of the S&P 500. This also outperformed the -29% of the Nasdaq. Since its IPO almost a decade ago, CHGG has risen +205% to beat the broader indices as well.

Zacks Investment Research
Image source: Zacks Investment Research

Trading around $27 per share, shares of Chegg are trading at 21.9 times forward earnings. This is well below the Internet software industry average of 45.4X. Even better, it’s well below its decade high of 501X and a 79% discount from its decade median of 106.2X.

PayPal (PYPL Free report)

Another popular internet software stock that looks attractive at current levels is PayPal (PYPL free report). PayPal has become one of the largest providers of online payment solutions following its independent spin-off from eBay (EBAY Free report) in 2015.

PayPal is responsible for making payment solutions much easier for consumers during the rise of the Internet, as the frequent use of the checkbook has become obsolete and incompatible with online shopping.

PayPal’s stock may have reached oversold territory. Wall Street questioned the premium paid for PYPL earlier in the year amid rising inflation, but the stock looks attractive at current levels. PYPL currently sports a Zacks Rank #2 (Buy).

Trading around $73 per share and around 62% off its 52-week highs, PYPL has a P/E of 23.7X. This is well below the Internet software industry average of 45.4X. PYPL is trading 170% below its five-year high of 87.8X and at a 50% discount to the median of 48.1X.

Zacks Investment Research
Image source: Zacks Investment Research

On top of that, profit estimates have increased. Earnings are now expected to fall -11% to $4.08 per share in 2022, but that’s up from EPS estimates of $3.93 per share 90 days ago. Full-year 2023 EPS is expected to rebound and climb 17% to $4.78 per share. That’s also up from estimates of $4.70 per share last quarter.

Zacks Investment Research
Image source: Zacks Investment Research

In terms of revenue, sales are expected to grow 8% this year and another 8% in FY23 to $29.88 billion. Fiscal 2023 sales would represent a 68% growth over pre-pandemic levels, with 2019 sales at $17.77 billion.

With solid growth still expected, the stock’s decline this year looks more and more like a buying opportunity. PYPL is down -60% year-to-date to underperform the benchmark and the Nasdaq.

However, since its spin-off from eBay eight years ago, PYPL is still up +100% to beat the benchmark and slightly behind the Nasdaq.

Zacks Investment Research
Image source: Zacks Investment Research

Conclusion

Trading attractively relative to their past, Chegg and PayPal could see their stocks rise as we approach 2023. These popular tech companies have well-known businesses that are beneficial and helpful to consumers. Upward revisions to earnings estimates and revenue growth indicate that this should continue.

Leave a Comment