NILE Highly Overvalued, Says Altucher

According to James Altucher, short sellers are currently interested in Blue Nile (NASDAQ: NILE), which has been posting disappointing results. Although the market has been blaming the company’s weak results on the economy, a reality check shows otherwise. NILE is selling a commodity product, is losing unique user traffic market share to its competitors and is one of the most overvalued stocks in the market. However, the company’s stock remains compelling as Wall Street analysts, reporters and market participants do not seem to be following competitive trends in the industry.

Blue Nile’s unique visitors have been falling year-over-year over the past 15 of 16 months. Meanwhile, the traffic and overall market share of its competitors, even traditional brick-and-mortar retailers like Jared, have risen sharply. This fact is underlined by the data released by Compete.com which showed that unique visits at NILE fell 15% year to year and the company’s market share slipped 27% in Q4. Meanwhile, visitors, orders and revenues at Zale Corp (NASDAQ: ZLC) jumped 17% in the latest quarter as it is focusing on shifting advertising spending online.

One of the reasons for the contraction in NILE’s market share is the cheaper offerings by competitors. Moreover, the traditional brick-and-mortar retailers are placing higher emphasis on the online channel and consequently gaining market share. Also, there has been a spike in online competitors, most of whom have websites that match the quality of that of NILE. Last, but not the least, there have been several cases of NILE being involved in misrepresenting the quality of its merchandise to its customers.

James Altucher finds NILE weak on fundamentals, with revenue growth in the red and substantially lower margins than its peers. However, the company’s stock trades at a huge premium, when it should be trading inline with that of comparable companies. As a result, there is a decline potential of over 50% in the company’s share price.

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