The Online Allure Of Blue Nile's Diamonds

By Gene G. Marcial

Blue Nile (NILE ) could be a girl's best friend -- and an investor's delight. This little-known Seattle-based gem is the top U.S. online retailer of diamonds, mainly for engagement and wedding rings. It's also a leader in online specialty jewelry. Nile is among the few companies that went public in 2004 with a bang: With Merrill Lynch (MER ) behind its May 19 initial public offering at 21.50 a share, Nile zoomed to 28 on opening day -- and in a month sparkled at 40. It has since slid to 31.

Marion Schultheis, managing director at investment firm J. &W. Seligman, says its allure is in making gem shopping simple and convenient, with all kinds of services and guarantees. She bought IPO shares for Seligman and aims to buy more.

Sparkles And Shadows
Anne-Marie Peterson of Thomas Weisel Partners has an "outperform" rating, with a 12-to-18-month target of 41 to 46. With minimal inventory and no retail stores, Nile has been "highly profitable at the early stages of growth," Peterson says. She figures Nile will earn 46 cents a share in 2004, on sales of $160 million, and 64 cents in 2005, on $203 million.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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