Friday, February 12, 2010

Blue Nile shares, as pricey as their wares (NILE)

Was that the most awesome title ever???

Online jewelry company Blue Nile (NILE) shares are off only 6% today, incredibly, after a very disappointing earnings release and conference call last night.

They came in 3cents shy of earnings per share expectations of 38cents, and revenue of $102.9million only missed the street's estimate by 3%.  Doesn't sound bad, but when your stock trades at a Price to Earnings ratio (even net of $3 cash per share) of 44times trailing earnings and 37times 2011 estimates, you MUST EXECUTE PERFECTLY.  Blue Nile instead guided first quarter 2010 earnings and revenue below what Wall Street expected, and for this they deserve to trade down.  That they are off only 6% is a miracle.

For an example of how important it is for NILE to beat expectations, Benchmark Capital downgraded the shares to SELL from HOLD and took their price target for the company down 42%, from $60 to $35.  Overnight.  Poof.

Deutsche Bank took their target down to $45 from $50, saying they'd like to wait for a better entry point (lower buy price).

On the conference call, CEO Diane Irvine responded to an analyst's question about future growth.  Referring to the company's 23% quarterly sales growth versus the industry's growth of between negative 11% and positive 12%:

"If we can grow 10 to 30 points better than anybody else in our industry, I'll take that."

And she's right to be proud of those market share gains.  Just don't be surprised to see investors price 2011 earnings at 20x, versus 40x.  A PE of 20 is still far above the market's average, yet that would imply a stock price 48% lower.

Copyright 2010 AlphaNinja

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