Shareholders of Angi would probably like to forget the past six months even happened. The stock has dropped 42% and now trades at a new 52-week low of $1.53. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Angi, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why ANGI doesn't excite us and a stock we'd rather own.

Why Is Angi Not Exciting?

Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.

1. Declining Service Requests Reflect Product Weakness

As a gig economy marketplace, Angi generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.

Angi struggled to engage its audience over the last two years as its service requests have declined by 23.3% annually to 3.63 million in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Angi wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Angi’s revenue to drop by 13%, a decrease from its 7.7% annualized declines for the past three years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

3. Poor Marketing Efficiency Drains Profits

Consumer internet businesses like Angi grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It’s expensive for Angi to acquire new users as the company has spent 53.3% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Angi’s product offering can be easily replicated and that it must continue investing to maintain an acceptable growth trajectory.

Final Judgment

Angi isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 6.1× forward EV-to-EBITDA (or $1.53 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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