Shares of ANGI Homeservices (ANGI 4.95%) have fallen recently despite a solid second-quarter earnings report. Investors were rattled by what seemed to be a slowdown in July after a strong rebound in May and June, but that was an illusion. Dig into the numbers and you'll find ANGI's opportunity here is just as strong as ever.

The second quarter

Revenue increased 9% to $375.1 million, easily beating estimates at $363.4 million, and service requests rose 18% to 9.4 million, its highest in a quarter since at least 2018. The company added record levels of new service providers to its platform in the last few months with 53% growth in July alone.

On the bottom line, the company saw improvements as it benefited from lower ad rates, which helped  drive operating income up 55% to $17.6 million. Adjusted EBITDA increased 13% to $57.9 million, and the company reported a GAAP profit of $0.02 per share, double from a year ago, and better than expectations of a loss of $0.01.

A new house being put up

Image source: Getty Images.

After revenue growth of 15% and 14% in May and June, respectively, top-line growth slowed to just 7%, which seemed concerning, but management explained on the earnings call that revenue was actually flat from June to July, meaning there was no slowdown in business in July. Rather, certain factors affecting comparisons seem to be the reason for deceleration in revenue growth as July was its strongest month last year, due to a wetter-than-normal spring and benefited the July a year benefited from a fifth Monday, the company's busiest month of the week. Marketplace service requests remained strong in July, rising 24% after 27% growth in May and a 34% jump in June.

The market's misreading of the report seems to set up a buying opportunity. Let's take a closer look.

Demand is not a problem

As those numbers show, ANGI is seeing high demand from homeowners in recent months, especially for outdoor jobs and necessary repairs, but the company is still facing constraints on the supply side as a number of service providers are still not back up to full capacity after shutting down or laying off staff during the lockdown period.

CEO Brandon Ridenour said that service providers are ramping back up as demand is clearly there, and most say they expect to be at full capacity within the next 90 days. But given the health impacts and risks around COVID-19 as well as other challenges, it's likely that some percentage of service providers will remain below full capacity as long as the pandemic is active.

Ridenour was also encouraged by the jump in new service providers, which was one sign that the company is gaining market share, and that the home services industry is making a permanent shift to the online channel.

Elsewhere, the company is making progress on its fixed-price initiative as 30% of categories are now available to customers through its direct, no-haggle pricing model. The fixed-price offering has gotten high satisfaction ratings from both homeowners and service providers and should be a high-margin business for ANGI once it reaches scale. After launching a little more than a year ago, the business is now generating $1 billion in annual gross merchandise sales on the platform, and the company is now tackling mid-priced categories like building a deck, which represent a $200 billion addressable market.

Ridenour said the company is rolling out new fixed-price categories over the next 18 months and aims for the fixed-price business to make up half of its revenue in five years, and beyond that becoming a majority of the business. In other words, fixed price is the most important area for long-term investors to watch, and if successful, the initiative could be highly profitable.

The valuation question

ANGI stock has been all over the place since the company was formed by the merger of Angie's List and HomeAdvisor in 2017. The stock climbed to nearly $24 in 2018 before falling to $4.10 during the crash in March, and was roughly at a midpoint of those two extremes, around $14, at Wednesday's close. The company has no true peers and operates near breakeven on the bottom line with a goal of growing revenue by 20%.

Given the uncertainty around the pandemic and the difficulty of adequately valuing the stock, investors should expect continued volatility, but the sell-off is misguided. With strong demand for the foreseeable future and the long-term potential of its fixed-price business, this an appealing opportunity for long-term investors.