Joe Friday

Earnings Will Sink Blue Nile's Stock

The real fools are the investors who entrust their money to those managers. If my money was in one of their funds I would be calling them up to find out their ratioinale for investing my money in NILE. That would be a fascinating conversation.

Earnings Will Sink Blue Nile's Stock

This is indeed a highly manipulated stock. It does not trade on valuation. Nobody in the market could possibly justify the purchase of this stock on any valuation metric (which begs the question...why are the institutions holding it?)
The key here is float analysis. The total share issuance is 14M.

According to Yahoo, 126% of all the shares outstanding are held by institutions and 3% are held by insiders finance.yahoo.com/q/mh.... I am not sure how this is possible, and it may not be entirely accurate, but it helps explain the manipulation. There is virtually no truly free float for the retail investors.
The total number of shorted shares is now 2.7M. But, it is important to note that during the run from 20 in March to 66 last week, the short position declined from 6M to 2.7M. With the float as tightly tied up as it has been, each bump in price has caused more and more weak shorts to cover (margin calls), and it has been hard to borrow, adding more short squeeze fuel. The short squeezes combined with the tight float has forced the price higher and higher. If you watch the trading in this stock you will note a tendency to have it run up in the early trading based on the margin calls and borrow calls from the previous day.
The tight float is indeed a two edged sword, however. Any large holder that trys to exit will drive this down very quickly. Nobody reallly beleives this stock is "worth" 65. The question the institutions need to grapple with is how do they exit and get their hands on the mirage value. In addition, the 3M shares that have covered are all waiting on the sidelines hoping to get in for the ride down...Any combination of selling of any size from those burned shorts or any one institution that trys to exit will burst the balloon.
The question is when will that happen, and can the shorts still holding wait until it does.

"the market can remain irrational longer than you can remain solvent" .. I believe the quote is attributed to Bernard Baruch.

Retail Sector Rebounds (Part II): All That Glitters

Odd that you would suggest that Fossil's p/e was a little rich at 17, but fail to mention that Nile is trading at a p/e of 92.

In general your "analysis", is exceedingly simplistic.

Blue Nile: Trading on Thin Air

if you watch the trading in this stock you will note very large swings on very little volume, especially on the open. There is very litte in the "public" float. Shorts that have to cover for margin or borrow reasons have no option but to pay up to buy the shares, and the market makers have enough control on the float to ensure they pay a healthy premium to cover. This is a classic short squeeze stock.
About 3M shares have been covered in the last six months, and this is the source of most of the run. It is not possible to justify the purchase of Nile on any other basis.
Those shorts that have covered are likely waiting to pounce on any weakness, and when they do the market makers will not pick up the paper on the way down. In addition, it is not possible to exit from this stock with any position of size without dramatically reducing the price. Thin floats are a two edged sword.

Four Factors Guiding Blue Nile's Price Range

Your article omits a few salient facts.
1. They withdrew guidance. A clear indication that they believe that trends are worsening. The retail environment is terrible, and Nile is not immune to the economic reality of the moment.
2. They indicated in the cc that sales in the currnet quarter are trending off 15% already, and in my view they are likely to get worse before we see any improvement. In the first q of 2008 their gross revenues were 70M. That would indicate they are trending towards gross revenues of approx 59.5M for this quarter.
3. Their gross margins for the last quarter and the last year are about 21%, resulting in expected gross profits for the current q of about 12.4M.
4. S G and A last quarter was 12.4M, and that should be very close to the current overhead run rate.
5. At a revenue run rate of 59-60M they break even! That is what the facts provided during the cc would indicate.
6. Any deterioration from a revenue run rate of at least 60M/q will result in losses.

Turning to their balance sheet, it is important to note as follows.

1. Although they ended the December q with 54M in cash, they also had 63M in trade payables!!
2. In addition, their inventories were 19M at the end of the q, a decline of about 10% from the prior year, though revenues for the q were down 20%.
3. Current assets exceeded Current liabilites at the end of the quarter by only 8M. They don't have much on the balance sheet other than current assets and libailbities. Book Value, if you accept all values as accurate was 19M at the end of the quarter.
4. There are just under 15M diluted shares outstanding, resulting in a stated book value of 1.26/share. Any write down of inventory or fixed assets would reduce that number further.

At current trading levels the stock is trading at almost 17 x book!
At current trading levels, the stock is trading at an infinte p/e. there is no "e".
Management will not have the cash resources to support the stock price for much longer. Note they used their cash to buy back 66M worth of stock in 2008 (it appears they reduced the diluted share count by 2M shares for an average of about 33/share). Without the management bid in the market, the only other logical source of support is short buy backs. Once they dissipate, the stock should descend.

Given these facts, it is very hard to understand how anyone, let alone someone who is employed as an analyst could recommend this stock.