I was surprised to see Blue Nile, Inc. (NILE) pop upward to close at $78.56, up $6.59 from $71.97, after Citigroup upgraded the stock to a Buy from a Hold. Citigroup also raised its target price to $88 from $51. If I understand this situation correctly, on this past Friday Citigroup had a hold on Blue Nile with a target of $51, when the stock was trading at about $72. Today, the company changed its outlook and recommended a buy with a target price of $88. To be fair to Citigroup, I have only read press releases of Citigroup's report.
I wrote about Blue Nile's last quarterly conference call and I wrote two additional articles here and here. You can view the year to date stock price chart, courtesy of Yahoo. While I have been and remain bullish on Blue Nile, given today's closing stock price, I obviously have not been bullish enough. That said, I am not sure how one can accurately gauge how Blue Nile and the jewelry industry are performing until we get the latest earnings releases and conference calls. Then we will be able to gauge how well consumers are enjoying strong employment while weathering high energy prices and declining housing values.
According to Yahoo Financial, the short interest in Blue Nile has decreased. As of 12 June, the short interest was 2.46M shares for a short ratio of 9.4 days. About 16.80 percent of the float was short. In the prior month, there were 3.10M shares short. And in the prior month before that, there were 4.0M shares short. Thus, some of the buying over the past while has been the shorts covering their positions. The data from ShortSqueeze.com is similar.
According to Yahoo, the forward PE is a whopping 71.4, a high value indeed. Although I am tempted to take some gains off the table, I remain bullish and, until I have more information to work with, am inclined to maintain my current position in Blue Nile. During the next series of earnings releases and conference calls, I will try to assess how well traditional jewelry retailers are performing, how Blue Nile is growing its customer base domestically and internationally, and how successful Blue Nile is at taking share away from the traditional retailers. Once I can begin to answer those questions, I can then put into context the high forward PE value.
Disclosure: I am long Blue Nile shares.
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