Angie’s List Inc (ANGI): Slam!

Fair?
It’s a compelling case against the web-based company, which trades at nearly 10 times revenue. To me, though, the details are nearly irrelevant. Investors should avoid Angie’s List today because it is ridiculously valued, with no indication that it can fulfill the expectations implicit in its pricing. I doubt the company is, as mentioned in the report, a pyramid scheme-like business. Like other listing services, businesses do have to pay up big time to be put in the top 10 or top 5 listings — that’s how the service makes money.

As far as customer satisfaction goes, some quick research does show distaste. It may seem ironic, but go on Yelp Inc (NYSE:YELP) and type in “Angie’s List.” You’ll find a number of plumbers and other skilled professionals with reviews from people who used Angie’s List. For my town (Los Angeles), the first page was riddled with Yelp users complaining about the business listed, which they originally found via Angie’s List. Is this a surefire indicator that the company is no good and unsustainable? No, but it does raise another red flag in what appears to be a red-flag store.

Foolish call
From personal experience, Citron Research reports can be sensationalist and very leading. Moreover, investors know the firm is short the stock — this is how it makes money. That is not to say that the information is inaccurate or otherwise, but understand that this is not quite a Robin Hood service.

That said, Angie’s List stock is unbelievably expensive. Even with the doubling revenues every couple of years, operating income has traveled in the opposite direction. Getting a business to scale, especially in this space, is very expensive, but investors need more evidence that the capital is going to good use.

In summary, I heartily recommend that investors steer far clear from Angie’s List for the foreseeable future.

The article Bad Business or Not, Angie’s List is Simply Overvalued originally appeared on Fool.com.

Fool contributor Michael Lewis has no position in any stocks mentioned, and neither does The Motley Fool.

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