As education shifts online amid the coronavirus pandemic, online learning stocks have been surging higher.
The biggest names in the space are all up double digit this year, with Chegg (NYSE: CHGG) up 98% so far this year, K12 (NYSE: LRN) up 85%, 2U (NASDAQ: TWOU) up 61%, Rosetta Stone (NYSE: RST) up 55%, and Pluralsight (NASDAQ: PS) up nearly 20% year-to-date.
This week, Piper Sandler initiated coverage of textbook rental company Chegg with a $90 price target—indicating roughly 20% upside from the current level—and an Overweight rating. The firm argued Chegg is a “leader in digitizing the student experience” and will be a “primary beneficiary” of the shift to online learning.
Miller Tabak chief strategist Matt Maley noted that Chegg shares were “very, very overbought on a technical basis” earlier this month after surging more than 246% off its March lows through August 7.
But since then, the stock is down around 16% and has worked its way out of its overbought condition from earlier in the month. And now, Maley is watching a technical chart pattern to see where the stock will head next.
“One thing I’m a little worried about [is] it has formed what could be seen as a head-and-shoulders pattern,” Maley said.
Chegg is still holding above the pattern’s “neckline” at Thursday’s closing price of $75.20, but a break below $70 could signal a move lower.
“Whenever you break a neckline of a head-and-shoulders pattern, that’s one of the most bearish developments you can see,” Maley 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,” Maley continued. “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.”
Maley also has his eye on Pluralsight, which offers more than 7,000 virtual training courses for a range of technical and creative skills, including cloud computing, security, data analysis, and software development.
Looking at Pluralsight’s chart, the stock has broken above its trend line going back to 2019 after a slight pullback, which is a good sign for the stock.
“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,” Maley said. “I think it’ll get another leg of momentum higher. So, I like both stocks, but I think Pluralsight’s the one that looks best to me on the charts.”
William Blair analyst Stephen Sheldon is also bullish on Pluralsight, rating it an Outperform, and said this week that he’s optimistic about the macro environment for the company as the shift to remote teaching has accelerated amid the pandemic.
Sheldon said that in the near-term, Pluralsight’s billings growth will be “a touch slower” due to constrained IT budgets at companies, but said demand could rebound quickly in the medium-term as conditions improve.
“Part of that is going to be driven by a significant pickup in technology adoption in areas like cloud deployment, cybersecurity, artificial intelligence, and machine learning. There are huge IT skill shortages in these areas,” Sheldon said. “Pluralsight may be one of the best solutions to help with the ups killing and respelling that might be needed to get some of those strategic projects off the ground.”