Blue Nile Shares Plunged: 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 online jeweler Blue Nile (NAS: NILE) sank 11% Thursday after its quarterly results and full-year outlook easily missed expectations.

So what: Blue Nile's fourth-quarter whiff was so big -- EPS of just $0.30 versus the consensus $0.42 -- that Wall Street analysts have no choice but to significantly cut their price targets on the stock. Weak high-end diamond demand, coupled with rising input costs, is naturally triggering fresh concerns over the company's long-term profitability.

Now what: Looking ahead, Blue Nile now sees full-year 2012 EPS of $0.70-$0.85, well below the average analyst estimate of $1.09. "The fourth quarter was challenging for Blue Nile, with weakness in demand from our high end diamond customers and some of our international markets, as well as the continued impact of inflationary pressure on commodity costs," said CEO Vijay Talwar. "While we managed the business through these headwinds, we implemented components of a new strategy designed to accelerate growth." When you couple the trends working against Blue Nile with its still-lofty P/E, however, I'd wait for an even bigger pullback before betting on that growth.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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. The Fool's disclosure policy always gets a perfect score.

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