Blue Nile Shares Dropped: What You Need to Know
Aug 5th 2011 2:52PM
Updated Aug 5th 2011 2:54PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Disappointing earnings had investors shipping Blue Nile (NAS: NILE) down the river this morning, as the stock dropped 10.5% on bad news. It's pared the losses somewhat since, however.
So what: What caused the sell-off? Well, there was an earnings miss to begin with -- Nile earned $0.19 per share in the second quarter, versus Street expectations of $0.21. The real damage, though, I suspect, came when Nile warned investors that it was going to fall at least a nickel short of third quarter estimates, which currently have Nile pegged for $0.22 per share.
Now what: Between the second-quarter miss that just happened, and the third-quarter miss that probably will, you have to expect analyst full-year profit estimates to walk back to about $1 a share, or less. If that's how things work out, Nile today costs about 35 times current year earnings -- a pretty price to pay for a stock the Street thought would fall short of 18% long-term growth even before the earnings warning.
I think investors got it right the first time, when they sold off Blue Nile shares in droves. My hunch: We end the day with Nile losing something closer to the original 10.5% than to the 4.5% it's currently losing.
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At the time this article was published Fool contributor Rich Smith does not own (or short) shares of Blue Nile. The Motley Fool has a disclosure policy.Motley Fool newsletter services have recommended buying shares of Blue Nile. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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