Long time readers of this blog will be shocked by one of these two picks and not surprised one bit by the other. I have been a consistent short investor in online jeweler Blue Nile (NILE) and while last year it was not as obvious, this year has been a home run every time. It is the 5th time that I go short on Blue Nile this year and each of them has been successful as you can see in our track record.
When we closed out last week’s pick on Apple(AAPL) vs Blue Nile(NILE), I had no intention of going back to this name but when I was back studying different trade possibilities, Blue Nile once again came as an overvalued company. It is amazing how consistently the company is priced as a “high growth” stock when it is not so.
The surprising pick here of course is going long Amazon. I have been a very vocal critic of Amazon (and here) and the energy it has been putting into the Kindle, a product that does not compete very well with alternatives such as Apple’s Ipad. But there are two very clear reasons why I believe Amazon is the right name to go against Blue Nile in this specific circumstance:
-Amazon, like Blue Nile, is in the business of e-commerce and has been gaining sales and market share in a number of ways. It is well positioned and clearly experiencing growth which is a lot more than I could say for its competitor. Thus, seeing them at similar P/E ratios for next year does not make sense to me. I could prove this in many different ways but just take a look at the traffic charts for their main websites. Does Blue Nile warrant such a high P/E ratio?
According to Compete, Amazon’s traffic this year is +10,97% compared to last year
According to Compete, Blue Nile’s traffic this year is -38,38% compared to last year
-Just take a look at the numbers and you will see that every single indicator except for the P/E ratio favors Amazon. Even that number seems justified given the huge difference in growth.
Name Price EPS P/E ratio PE Next Year Return YTD Sales Growth Analyst rating Trend Analysis
Amazon.com Inc 160.73 2.08 66.69 35.93 19.48 27.88 4 +100
Blue Nile Inc 43.81 0.88 50.36 33.99 (30.82) 2.30 3.3 +60
The main worry on this trade is that Amazon (AMZN) has already gained significantly since July and could have a small setback. But the rise was not based on momentum alone but rather on good news, good earnings and solid forecasts. For that reason, I tend to think that this trade will turn out just fine. I don’t expect much from Blue Nile except under performing which it has been quite good at in the past year! Here are the charts for the two names!