Monday, July 14, 2014

Blue Nile $NILE

I really like Hempton's post from earlier this year, "Marc Andreesen's theory of public company shareholders, oh and a valuation of Amazon". I thought he expressed a good theory about neglected stocks that have been dumped by growth investors but are too expensive for deep value investors.

It got me interested in Blue Nile, and I've been watching it since. I haven't ordered anything (yet), but I agree with Hempton that the interface and - basically, diamond valuation screening - are "internet shopping at its finest".

Blue Nile is heavily shorted (see holders list), and I also agree with Hempton that you have to be seriously stupid to short already heavily shorted companies that are profitable, buying back stock, and growing - like Blue Nile and Herbalife.

Blue Nile price has been steadily declining recently, even as the company has significant net cash and has been buying back stock. Here's a chart of the enterprise value going back ten years.

The enterprise value is close to an all-time low! Yet revenue increased 14% compounded from 2011 through 2013. They are profitable and growing - why is the value of the business falling and near an all-time low?

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