Why Angie's List Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, local services review site Angie's List (NASDAQ: ANGI  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Angie's List and see what CAPS investors are saying about the stock right now.

Angie's List facts

Headquarters (founded)

Indianapolis (1995)

Market Cap

$1.5 billion

Industry

Internet software and services

Trailing-12-Month Revenue

$176.9 million

Management

Co-Founder/CEO William Oesterle

Co-Founder/Chief Marketing Officer Angela Bowman

Trailing-12-Month Return on Capital

(89.3%)

Cash/Debt

$62.9 million / $14.9 million

Competitors

Yelp

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 92% of the 318 members who have rated Angie's List believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, codyk500, summed up the bear case for our community:

I actually like this company, but I struggle to justify the valuation. Hard to call when the valuation will cave, but as long as there is positive momentum this should rise. The two catalysts to push it down are an earnings call that shows acceleration slowing. Second is a hiccup in the housing market.

My look on valuation:
Enterprise value: $1.1B
Members: 2M
Value per member (current): $559

Reported market penetration: 6.6%
Market penetration in Indianapolis market (most mature, 10+ years): 20%
Potential total market size: 3x what it currently is

Total member potential: 6.1M
EV / total member potential: $184 per member

Revenue per member in mature markets (pre 2003): $156
Revenue per member in mature markets net of marketing: $114

So if we assume they achieve full market penetration and are able to match their mature market revenue per member, this business still trades at 1.2x that revenue per member and 1.6x revenue net of marketing per member. That just seems a little like a stretch.

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