Bling Bling BIDZ.com: Not Just a Retailer

Before I dove into the incredible feast of turkey and wine that awaited me on Thanksgiving, I wanted to do a holiday analysis on a newer public company - BIDZ.com (BIDZ).

BIDZ is an online retail company the specializes in jewelry. Their website really stands out from the boring, regular e-commerce site. Check it out and you will see what I mean. One thing, apart from the flashing bid buttons, is that at the end of the bidding process, unlike eBay (EBAY) and others, once someone ups their bid it sets the clock back to 14 seconds to give the other bidders a chance to get back in. This way people can't come in at the last second and steal the product away from the other bidders. It also helps BIDZ get more money out of every auction. BIDZ is starting to branch out into auctioning all kinds of different items, but jewelery is currently their main focus.

The company just went public earlier this year and has seen huge price and volume movements up this month. The company also appeared on the IBD list at #2 last week, adding to the volume and volatility.

The company is experiencing huge growth on the top and bottom lines. In 2006 they had EPS of .23 and in 2007 they estimate EPS of .56 equating to about 140% bottom line growth. Now for next year they expect EPS to drop to .51, but net income is expected to increase from 14.74 million this year to 23.5-25.5 million next year. This is an increase of about 66%. The reason for the EPS drop is that their tax rate is going to increase from 20% to 40% and some additional share dilution mainly due to options.

Now everyone knows that the U.S domestic retail environment is a very dangerous place to invest right now. Those that are doing the best have a good piece of international exposure. BIDZ falls into this category with 25% of total revenues coming from international sales and that number was up 53% from the previous year, making it their fastest growing revenue source.

The company also has a strong balance sheet with little to no long term debt and about .78 cents a share in equity, taking the conservative approach. A bonus for the company currently is having the cash available to purchase large quantities of stones at a discount because they no longer have to finance the purchases. This will continue to help their gross margins which clocked in at about 31.7%

Taking this years EPS numbers of .57 (which is also conservative as company management has stated) and their projected 5 yr growth rate of 40%, you get a low end share price range of $23.58 using a PEG of just 1 with equity.

Take that PEG to 1.5 and you get $34.68 with equity.

Even with the EPS numbers projected to fall slightly next year for the reasons stated above, I believe management is still under promising and will at least meet this year's numbers with over 70% income growth.

These numbers illustrate the potential that a company like BIDZ has to continue to appreciate in value even in tough market conditions. Already this year we have seen similar companies like Blue Nile (NILE) appreciate with the same velocity that I think we can see from BIDZ.

In this market I think we can see some violent swings so please be careful, use wide scales and I believe you will be rewarded in time for Christmas.

Disclosure: Author has a long position in BIDZ