Going Comparative Diamond Shopping: Blue Nile vs. Tiffany

If you ever went diamond shopping, I am sure you are well aware of the four "C's"; Carat, Clarity, Color, and Cut. When shopping for diamond stocks, I would like to introduce a 5th "C" ...Comparative. If you are in the market for a diamond stock, this is one of the few times where the little blue box (Tiffany (TIF)) might be a better buy than Blue Nile (NILE).

Just recently, I had an opportunity to listen to the 2nd Quarter earnings call from Blue Nile. With all of the good news out of NILE and looking at the stock performance over the last year (Exhibit #1), I was intrigued to see how this stock stacked up against Tiffany, the name of all diamond names.

Exhibit #1. 1-year Stock Chart

Market Cap as of 8.10.2007
NILE - $1.35 Billion
TIF - $6.11 Billion
TIF/NILE Ratio of 4.5x

Annual Sales & Income from 2003 - 2006
Referencing Exhibit #2, you will see that NILE revenue is approximately 9.5% of TIF revenue in 2006, improving from 7.6% in 2003. On an Net Income perspective, 2006 for NILE was 5.2% of TIF's income. Please note that the 2003 Net Income for NILE included a significant tax net operating losses carry forward.

Exhibit #2 - Annual Sales & Income

Quarterly Sales Growth
This is where the NILE diamond really shines....NILE's quarterly revenue growth averages a 2.36 multiple over TIF's revenue growth in the last 14 quarters. Some of this is due to the smaller revenue size of NILE, but investors have welcomed the significant growth. Please note that Q2 2007 are the latest TIF analyst estimates.

click to enlarge

I hope this article has helped investors put the recent stock appreciation of NILE in perspective.

Disclosure: Author does not own any shares of TIF or NILE.

Comments

[Greg Pinelli:]

All the TIF slammers out there...including the useless YOURFILLED...ask your wife or girlfriend where they want their diamond or special gift from. I'd wait on TIF til closer to 42.00...but they are very well positioned for the new wave of wealth...Asia and the people who'll visit the upscale gambling center and city stores, and even at todays close they represent a very conservative hold for the longer term. At worst..they are prime takeover stuff..how good would LVMH look with a TIF tag on their lapel?

2007 Aug 13 08:17 PM