There is always an abundance of stocks to choose from but investing is often more fruitful and rewarding when investors understand the company’s business model and believe in the company themselves.
Two well-known companies in the Internet-Software Industry are here to give investors hope as we move into the new year. The Internet-Software Industry currently ranks in the top 24% among over 250 Zacks Industries.
Chegg CHGG
Chegg (CHGG), is a worthwhile investment on many fronts. Many investors are putting money aside for their children/grandchildren’s future education or even trying to finish up a higher level of schooling themselves and are familiar with Chegg’s social education platform.
Chegg is a popular tool for students and learners to understand and study their course material. The company rents out and sells textbooks. It also offers eTextbooks and homework help, as well as scholarship and college admission services.
CHGG currently has a Zacks Rank 2 (Buy), with earnings expectations rising for FY22/23.
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CHGG earnings will drop -1% in 2022 from $1.28 per share to $1.28, but this is still 14% higher than the $1.12 per share of 90 days ago. FiY23 earnings are expected to rise 7% to $1.38 per Share with earnings estimates increasing over the past quarter.
Forecasts for sales are down by 1% this year, but they will rise by 7% in FY23 to $816.84million. Sales for FY23 are expected to increase by an impressive 199% compared to the previous five years.
Chegg stock is down by -9% YTD vs. The S&P 500’s -18%. This has also outperformed the Nasdaq’s -29%. CHGG’s stock price has risen +205% almost a decade since it went public. It also outperforms the broader indexes.
Image Source: Zacks Investment Research
Chegg shares are traded at around $27 per share and have 21.9X forward earnings. This is well below the Internet Software industry average of 45.4X. This is even better than its decade high of 45.4X, and 79% below its decade median 106.2X.
PayPal PYPL
PayPal (PYPL) is another popular Internet-Software stock, which looks attractive at the current levels. PayPal (PYPL) has grown to be one of the most popular online payment solution providers since its 2015 independent spinoff from eBay EBAY.
PayPal was created to simplify payment options for internet users. The frequent use of a checkbook has become obsolete and incompatible online purchases.
PayPal’s stock may have reached oversold territory. Wall Street had doubts about the premium PYPL paid earlier in the year, but the stock is still attractive at current levels. PYPL currently has a Zacks Rank 2 (Buy).
PYPL trades at $73 per share, which is 62% below its 52-week highs. It has a P/E value of 23.7X. This is considerably lower than the Internet Software industry average of 45.4X. PYPL trades at 170% below its 5-year high of 87.8X, and at a half-off of the median of 48.1X.
Image Source: Zacks Investment Research
Additionally, earnings estimates have increased. The earnings estimates for 2022 are lower at -11% to $4.08 per sen, but this is higher than the EPS estimates of just $3.93 per sen 90 days ago. Fiscal 2023 EPS is projected to rise 17% to $4.78 per share. This is also higher than the $4.70 per share estimate for last quarter.
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The top line is that sales will rise by 8% this year and another 8 % in FY23 to $29.88billion. With 2019 sales at $17.77 Billion, fiscal 2023 sales will see 68% increase over pre-pandemic levels.
With solid growth still expected, this year’s drop in the stock is looking more and more like a buying opportunity. PYPL is currently down 60% YTD and underperforms the benchmark and Nasdaq.
PYPL has been up +100% since its eBay spinoff eight years ago and is slightly behind the Nasdaq.
Image Source: Zacks Investment Research
Bottom line
Chegg and PayPal trade attractively in relation to their past. They could see their stock prices rise as we enter 2023. These tech companies are known for their businesses, which are beneficial and useful to consumers. This trend should continue, as can the increasing earnings estimate revisions.
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Chegg, Inc. (CHGG) : Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
eBay Inc. (EBAY) : Free Stock Analysis Report
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These views and opinions are solely the opinions of the author. They do not necessarily reflect the views of Nasdaq, Inc.