“Despite a highly attractive business model and intrinsically strong fundamentals, NILE’s current valuation leaves little room for upside in the stock and even less margin for error vis-a-vis quarterly earnings reports,” he wrote in a research note. Boyd adds that he thinks a number of the company’s key metrics - year-over-year revenue growth, gross profit growth, year-over-year EBITDA margin expansion and free cash flow generation - hit their 2007 peak in the March quarter.
Boyd notes that gross margin has been compressed on a year-over-year basis for each of the last five quarters, due to rising prices for diamonds and precious metals and aggressive price discounting.
We view NILE as a core, long-term small-cap Internet holding, but will wait for a more attractive entry point. We believe the stock has simply gone too high, too fast and is due for a correction.
His price target on the stock is $45.
Blue Nile Friday was down 58 cents at $54.58.