New Trade: Long Google And Short Blue Nile

by: Intelligent Speculator

Ahh the earnings have started coming in. These days, I'm spending (too much) time reading at night trying to draw conclusions from both the earnings numbers but also the earnings calls. I'll try to write more about it this week, I obviously can't wait to see what Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL), my two biggest long term positions come out with. I also am closing out 1 trade as I mentioned this morning. After another good week, the long & short portfolio has returned 29.51% so far this year. The past 3 years have been good but this is obviously the top one since writing this blog. Hopefully things do keep up.

Today I didn't have as many options as I usually do despite only having a few live trades. Earnings season gave me less confidence in many of these stocks so after doing some filtering, I ended up with 7 names. I was tempted to do a trade with Twitter (NYSE:TWTR) and LinkedIn (NYSE:LNKD) but will wait for both to report earnings before drawing more conclusions. So I'm going with 2 stocks that I've traded frequently:

Ticker Name Price PE Ratio PE Next Year Return YTD Sales Growth Analyst rating Book Value Beta Revenue/Share Sales 5Y Avg Growth EPS 5Y Avg Growth Sales 5Y Avg Growth EPS 5Y Avg Growth
GOOG Google Inc 595.08 N/A 18.1 N/A 19.23 4.46 N/A N/A N/A 23.84 17.09 8.19 13
NILE Blue Nile Inc 27.4 31.08 21.23 -43.24 12.49 3.67 2.18 0.95 35.89 10.85 109.9 0.65 N/A

GOOG Revenue (Quarterly YoY Growth) Chart

GOOG Revenue (Quarterly YoY Growth) data by YCharts


Google has been on a good run and while it remains more than anything else, a company that dominates search and makes most of its money by showing ads on those pages, there are more and more "potential seeds". Things like its Android presence, its Youtube channel, its different Google X projects, etc. Some of those will end up generating solid growth and for that reason, I think Google does deserve a valuation premium. Costs are rising a bit faster than I'd like to see but I am becoming a believer in the "Page doctrine" and do think some of those initiatives will end up paying off.

GOOG Chart

GOOG data by YCharts

Next earnings release: October 17th 2014

Short Blue Nile (NASDAQ:NILE)

Over the years, I've been a Blue Nile doubter and have probably shorted it more than any other stock. I've pulled back on that quite a bit this year. Part of it is the decline in the stock making it less "overvalued" but the earnings growth has also been strong making it a riskier short. That being said, when I compare the valuation of a stock like Blue Nile to Google, it does still look expensive and this week seemed like a good option to go for. Earnings growth is important but I'm a strong believer in the revenues growth being a critical metric and from that perspective, it's been disappointing.

NILE Chart

NILE data by YCharts

Next earnings release: August 1st 2014

Disclosure: No positions on Google (GOOG) or Blue Nile (NILE)