Angie’s List (NASDAQ:ANGI) has been discussed in detailed by many contributors passionately over the past year. Instead of repeating these arguments, I have decided to contribute to the discussion through a calculation of risk as defined by Harry Domash in his book “Fire Your Stock Analyst!“. In Chapter 10 Domash describes his “Financial Fitness” methods which we can apply to evaluate how risky an investment in ANGI or any other stock is.
According to the author, companies likely to go bankrupt are in 1 of 3 groups:
- Busted cash burners: new firms, never made a consistent profit, little or no long-term debt, run short on cash and can’t raise more.
- Overburdened debtors: large, mature, history of using debt, something changes and can’t cover debt service
- Solvent and/or profitable companies: established firms that file for bankruptcy due to lawsuits.
To figure out in which group your prospective investment is, you use the ratio of assets / equity. If this ratio is greater or equal to 2.5 or equity is negative you apply the “Detailed Fiscal Fitness Exam”, otherwise you apply the “Busted Cash Burner” analysis.
As ANGI, has negative equity we need to apply the “Fiscal Fitness Exam”. However, let’s also apply the “Busted Cash Burner” analysis to see what it would conclude.
To Read The Entire Article go to: Does Angie’s List Pass The Financial Fitness Test?
