Can Blue Nile Earnings Outshine Short Sellers? (NILE)

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Today after market close we’ll get to see the earnings out of Blue Nile Inc. (NASDAQ: NILE). Blue Nile has suffered a miserable time of it since the highs last year.  They have been decimated, they have been more than halved.

Estimates from First Call for the online retailer of fine jewelry for this quarter are $0.14 EPS on $68.52 million in revenues. Estimates for next quarter are $0.22 EPS on $77.84 million in revenues. Estimates for fiscal Dec-2008 are $1.06 EPS on $352.69 million in revenues.

Analysts have an average price target of $52.00.  That price target has come down significantly.  Over the last 90-days, we’ve also seen a fairly large reduction in earnings estimates for this quarter and next; and estimates have been brought in for 2008 and 2009.  Options traders appear to be braced for a move of more than $5.00 in either direction.

Based upon the forward valuations and based on the current state of the economy, this one also no longer looks cheap on a forward multiple analysis.  The good news is that its balance sheet is in fine shape, but the flip side is that the stock trades at almost 12-times tangible book value.

As far as the chart, well shares used $40+ as support in both February and March.  Shares are currently close to the 50-day moving average of $47.68, and the 200-day moving average is far north at $67.64.

Lastly, we’d like to note that if Blue Nile doesn’t show some horrific numbers despite the concerns and high valuations, the short interest is massive here.  With 7.95 million shares carried in the short interest, that represents close to 59% of the float and is a days-to-cover ratio of roughly 20.  So anything "not so much more bad" could cause a major short covering session. 

Blue Nile’s shares were down about 3.5% at $46.14 in early afternoon trading; its 52-week range is $38.35 to $106.16.

Jon C. Ogg
May 6, 2008