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

There are always many stocks to choose from, but investing is often more productive and rewarding when investors understand the company’s business model and believe in the company.

Here are two prominent companies from the Internet Software Industry that investors can feel optimistic about heading into the new year. The Internet-Software Industry currently ranks in the top 24% of the 250+ Zacks Industries.

Chegg (CHGG free report)

Chegg (CHGG Free Report) is a worthwhile investment on most fronts. Many investors are setting aside money for the future education of their children/grandchildren or even seeking higher education themselves and are familiar with Chegg’s social learning platform.

Chegg is a popular choice for students and undergraduates to learn and understand course material. The company rents and sells textbooks, provides homework help and college admissions and scholarship services, as well as eTextbooks.

CHGG currently carries a Zacks Rank #2 (Buy) with earnings estimates related to growth for FY22 and FY23.

Image source: Zacks Investment Research

CHGG’s earnings are now expected to decline -1% to $1.28 per share in 2022, but that’s up 14% from $1.12 per share 90 days ago. FiY23 earnings are forecast to rise 7% to $1.38 per share, and earnings estimates are also rising in the latest quarter.

Sales are forecast to decline -1% this year, but rise 7% to $816.84 million in FY23. Sales in FY23 are at an impressive 199% growth rate over the past five years.

Chegg stock is down -9% YTD. S&P 500 -18%. This exceeded -29% of Nasdaq. Since going public 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 a share, Chegg stock trades at 21.9X forward earnings. This is 45.4X lower than the Internet Software industry average. Even better, it’s well below its decade high of 501X and a 79% discount from its decade average of 106.2X.

PayPal (PYPL free report)

Another popular Internet Software fund that looks attractive at current levels is PayPal (PYPL Free report). PayPal became one of the largest providers of online payment solutions after its independent separation 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payment solutions much easier for consumers during the rise of the internet, as the frequent use of a checkbook was outdated and incompatible with online purchases.

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 at about $73 per share and about 62% of its 52-week high PYPL has 23.7XP/E. This is well below the Internet Software industry average (45.4X). PYPL is trading 170% below its five-year high of 87.8X and 50% discount to the median of 48.1X.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, earnings estimates were higher. Earnings are now forecast to decline -11% to $4.08 per share in 2022, but this is higher than EPS estimates of $3.93 per share 90 days ago. In fiscal 2023, EPS is expected to rise again, rising 17% to $4.78. That’s up from last quarter’s estimate of $4.70 per share.

Zacks Investment Research
Image source: Zacks Investment Research

At the top end, sales are forecast to rise 8% this year and another 8% in FY23 to $29.88 billion. Sales in fiscal year 2023 will be $17.77 billion in 2019, a 68% increase from pre-pandemic levels.

With solid growth still expected, this year’s dip in stocks looks increasingly like a buying opportunity. PYPL is down -60% YTD to undercut the benchmark and Nasdaq.

However, since demerging eBay eight years ago, PYPL is still up +100% to outperform the benchmark and slightly trail the Nasdaq.

Zacks Investment Research
Image source: Zacks Investment Research

Bottom line

Chegg and PayPal, which trade attractively relative to their predecessors, could see their shares rise as we head into 2023. These popular technology companies have well-known, useful and consumer-friendly businesses. Rising earnings estimate revisions and top-line growth suggest this should continue.

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