Blue Nile Shares Crushed: What You Need to Know

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: Shares of Internet diamond dealer Blue Nile (NAS: NILE) weren't looking particularly brilliant today as shares fell by as much as a third after the company announced third-quarter financial results.

So what: Year-over-year revenue growth of 11% isn't bad. In fact, a lot of companies would be happy with that. However, not many companies are valued at more than 50 times their trailing earnings.

But it wasn't the sales growth that was the big issue with Blue Nile's quarter; it was the earnings growth -- or, rather, lack thereof. Earnings per share of $0.13 fell well short of the $0.18 that analysts were expecting and represented a 32% drop from per-share profit a year ago.

Now what: Compounding problems for the stock today is the fact that CEO Diane Irvine resigned. Irvine has been with the company since the beginning, the resignation was abrupt, and the company didn't give an explanation for it. That's more than enough for investors to be frustrated, if not downright worried.

Blue Nile is an active recommendation at the market-beating Motley Fool Rule Breakers, but my sense is that even after the hefty stock drop today, the shares are a bit pricey. For the full year, the company expects earnings per share of roughly $0.88 -- below analysts' $0.98 estimate -- which would give today's stock price a full-year earnings multiple of 38.

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At the time thisarticle was published Motley Fool newsletter services have recommended buying shares of Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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