While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Angie's List (NASDAQ:ANGI) surged 7% in pre-market trading Friday after Bank of America upgraded the local services review site from neutral to buy.
So what: Along with the upgrade, analyst Paul Bieber reiterated his price target of $16, representing about 60% worth of upside to yesterday's close. So while momentum traders might be turned off by Angie's sharp decline over the past year, Bieber's call could reflect a sense on Wall Street that the company's long-term growth prospects are becoming too cheap to pass up.
Now what: According to Bank of America, Angie's risk/reward trade-off is particularly attractive at this point. "We think stabilizing ARPU, constructive penetration trends, and improving sales force productivity could drive improved sentiment (29% of shares are short) and increased confidence in the model," said Bieber. "Also, Street estimates are now lower (a reason for our Feb. downgrade), and with the stock down 33% YTD (vs. Nasdaq +3%) and with 60% upside potential to our PO, we think the stock is more attractively valued." When you couple Angie's still-questionable competitive position with its 40-plus price-to-cash flow multiple, however, I'd hold out for an even wider margin of safety before betting on that bullishness.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.