I woke up this morning and went cruising in search of the next BIDU, i.e. a stock with growth but an insanely high P/E that is too high for the earnings growth. Instead, I found a stock that has zero or negative growth and still an insanely high P/E.
Pull up a 2 year chart of NILE showing the rolling EPS. You will see yearly EPS of $0.70 - $1.00. You will also notice that when their trailing EPS was $1.00 the stock traded between $20 and $55 a share.
Now their trailing 12 month EPS is $0.71 a share and they are trading at $65.75 a nice multiple of 92 times earnings.
So if you ask Jesse Livermore or any other trend follower, they will look at the chart and say this is a nice buy, which is great, but what happens when earnings come out on November 5th?
A few reasons being tossed around as to why this stock has moved up so much:
- People are comparing this stock to AMZN. However, AMZN is like Visa (V) & Mastercard (MA), they are more of a payment processor / middleman than an online retailer.
- The stock has a 20% short interest. That does not bother me because short squeezes rarely happen. Smart money short stocks and smart money is usually correct.
- Thinly Traded. Because the stock is thinly traded it is easily manipulated. See LNN, a stock where the market maker is the analyst too and upgrades it to outperform.
- People believe that the consumer is going to start spending again. That is great but it does not translate into earnings for Blue Nile. The recession creates babies, not weddings.
- Every guy that bought a ring online thought it is such a great company so they decided to buy a few shares. Kind of like the people that own Starbucks from $40 a share.
In conclusion, I think NILE between $17.50 and $25.00 could be something to consider buying.
The only way I would consider it a buy at those prices would be if earnings increased to $1.25 a year.
I plan on having a short position in NILE before they release earnings on November 5th.
Disclosure: I currently hold no position in NILE.