Chegg (CHGG) Predictability Rank

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What is Chegg Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Chegg Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Chegg (CHGG) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Defensive » Education » Chegg Inc (NYSE:CHGG) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

0CG:Germany 0CG:Germany

Address

3990 Freedom Circle, Santa Clara, CA, USA, 95054

Website

https://www.chegg.com

Chegg Inc is an American educational services company. The Chegg platform provides products and services to support learners with their academic course materials, as well as their career and personal skills development. The company's service and product offerings fall into two categories: Subscription Services, which encompasses Chegg Study Pack, Chegg Study, Chegg Writing, Chegg Math, and Busuu offerings that can be accessed internationally through the company's websites and on mobile devices, and Skills and Other, which encompasses skills, advertising services, print textbooks and eTextbooks offerings.

Executives

Nathan J. Schultz	officer: Chief Content Officer	C/O CHEGG, INC., 3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Andrew J Brown	officer: Chief Financial Officer	C/O PALMONE, INC., 400 N. MCCARTHY BLVD., MILPITAS CA 95035
Esther Lem	officer: Chief Marketing Officer	C/O CHEGG, INC., 3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Paul Leblanc	director	3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Marcela Martin	director	C/O SQUARESPACE, INC., 225 VARICK STREET, 12TH FLOOR, NEW YORK NY 10014
David Longo	officer: Chief Accounting Officer	3990 FREEDOM DR, SANTA CLARA CA 95054
Ted Schlein	director, 10 percent owner	2750 DANS HILL ROAD, MENLO PARK CA 94025
Daniel Rosensweig	director, officer: President, CEO & Chairman	C/O YAHOO INC, 701 FIRST AVE, SUNNYVALE CA 94089
John Paul Fillmore	officer: CHIEF BUSINESS OFFICER	3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Sarah Bond	director	C/O ZUORA, INC., 101 REDWOOD SHORES PARKWAY, REDWOOD CITY CA 94065
Robin Tomasello	officer: VP, CORPORATE CONTROLLER	C/O SENTINELONE, INC., 444 CASTRO ST., SUITE 400, MOUNTAIN VIEW CA 94041
John E. York	director	C/O CHEGG, INC., 3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Richard Sarnoff	director	C/O AUDIBLE INC, 65 WILLOWBROOK BLVD, WAYNE NJ 07470
Marne L. Levine	director	C/O CHEGG, INC., 3990 FREEDOM CIRCLE, SANTA CLARA CA 95054
Michael A. Osier	officer: Chief Information Officer	C/O CHEGG, INC., 3990 FREEDOM CIRCLE, SANTA CLARA CA 95054