Many would have seen this one coming, especially on the short side. I wrote last week about how I thought Yahoo was difficult to trade on right now and actually was uncertain about entering a trade. But this weekend I spent some time trying to see if the luxury markets where Blue Nile does business was getting back some traction and at least from Google Trends, the rebound seems to have started. Blue Nile does trade at a very high P/E ratio which is certainly a bit worrying but Yahoo’s ratios are even higher with the prospects of revenue growth very gloomy at best. Last week’s news release about more lost market share is more reason for concern and I feel very comfortable

On the other hand, Blue Nile has been going through some difficult times in the past few months as the stock dropped and recent traffic analysis indicates major drops. It is certainly not a great sign but I would think that Nile would actually benefit from consumers looking for better prices when purchasing such luxury items. Their next earnings report will certainly be very interesting and I do understand this is somewhat of a gamble but the recent stock drop does seem exagerated, especially for a company that even now has little competition.

So an interesting trade, two companies that are showing worrying signs. The difference is that one of them has a promising underlying business model while I am far from convinced about Yahoo’s plans for the future.

Disclaimer: No return is guaranteed and each recommendation should be considered within the investor’s individual situation. As with any financial investment, there are risks involved.