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Angie's List, Inc. (ANGI): B. Riley Says, There Ain't A Woman That Comes Close To You

 January 16, 2013 12:30 PM

(By Rich Bieglmeier) B. Riley analyst Sameet Sinha believes the clouds will all disappear for Angie's List, Inc. (ANGI). He says the stock will lead us to $18 from here. Perhaps, all those investors left with no money in their coats following Angie's fall from grace will be more satisfied.

All the dreams investors had for ANGI seemed to go up in smoke. The stock has fallen from an all-time of $19.82 on March 29, 2012. It's was all downhill until bottoming at around $9 in August and October of 2012. Since then, you can't say that bulls haven't tried. As you can see above, the stock has rebounded to the mid-$12s.

[Related -Angie's List Inc. (ANGI) Q2 Earnings Preview: Trending Towards a Smaller Loss than Expected]

Angie's List operates an online, consumer-driven solution for its members to research, hire, rate, and review local professionals for home, health care, and automotive service needs in the United States.  Members grade local service providers on an "A" to "F" scale. The company generates revenue with membership and subscription fees.

As of the most recent quarterly report, Angie's list has 1,656,768 paid memberships and estimates 29 million households in the United States in their target demographic, which consists of homeowners aged 35 to 64 with an annual household income of at least $75,000.

In order for Sinha's prediction to come true, the stock price needs to work its way through a ton of technical overhead. First of all, there has to be plenty "when it gets back to what I paid for it, I'll sell" investors, which means selling pressure will emerge as the stock moves north. iStock sees as many as 20 potential pivot points where sell tickets could appear between $12 and $16.80; once ANGI breaks $16.80 then $18 is no problem.

[Related -The Best Of Three Tech Shorts]

Navigating a technical minefield to $18 may put sadness in many eyes as the stock sputters and starts, but does Angie, Angie have the fundamentals that taste so sweet?

Wall Street expects the internet software & services (ISS) provider's sales to rise 49%, from $155 million in 2012 to 232 million in 2013. In the meantime, EPS losses are expected to shrink from 98 cents to 54 cents. As we type, Angie's List trades at 5.27 times sales (P/S). If the company hits Wall Street's target, it trades with a forward P/S of 3.08, which is reasonable at 49% sales growth, in our view. In fact, many ISS stocks trade with double digit P/S ratios.

At B. Riley's $18, Angie's List will have a market cap in excess of $1.03 billion, and a P/S ratio of 4.47; high for our tastes, but against some of the fast growers in the industry.

Since the company isn't expected to turn a profit in 2013, iStock examined Angie's most recent 10Q. We looked under ANGI's surface to see how the company is managed and for warning flags. iStock didn't find any major alarms.

Revenues were up 75% for the nine months ended September 30, 2012. One small concern is accounts receivables (AR), which increased 85%, and a little faster than sales. However, as a percentage of revenue, AR was flat 6.65% versus 6.62%.

Management appears to be handling the purse strings with care. Costs and expenses rose at 54.6%, significantly lower than 75% revenue growth. The wider the gap between the two grows, the faster ANGI will turn a profit. While costs exceed sales hence; no profit, iStock doesn't worry about it too much as 70% of the bill is marketing and selling.

Overall, aggressive investors might find Angie's List, Inc.'s (ANGI) potential upside attractive. Rising sales and memberships should lead to an eventual profit for the internet service provider; especially if management continues to keep costs and expenses under control. However, due to the lack of profitability, any hiccup that disrupts any of the above will likely have many institutional investors saying goodbye. 



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