Chegg has gotten torched over the last six months - since July 2025, its stock price has dropped 23.9% to $0.92 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Chegg, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Do We Think Chegg Will Underperform?

Even with the cheaper entry price, we don't have much confidence in Chegg. Here are three reasons we avoid CHGG and a stock we'd rather own.

1. Declining Services Subscribers Reflect Product Weakness

As a subscription-based app, Chegg generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Chegg struggled with new customer acquisition over the last two years as its services subscribers have declined by 18.9% annually. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Chegg wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

2. Shrinking EBITDA Margin

EBITDA is a good way of judging operating profitability for consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a more standardized view of the business’s profit potential.

Looking at the trend in its profitability, Chegg’s EBITDA margin decreased by 13 percentage points over the last few years. Even though its historical margin was healthy, shareholders will want to see Chegg become more profitable in the future. Its EBITDA margin for the trailing 12 months was 20.6%.

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Chegg, its EPS declined by 45.3% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

Chegg falls short of our quality standards. Following the recent decline, the stock trades at 2.5× forward EV/EBITDA (or $0.92 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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