2-Star Stocks Poised to Plunge: Blue Nile?

Based on the aggregated intelligence of 135,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online jeweler Blue Nile (Nasdaq: NILE  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Blue Nile's business and see what CAPS investors are saying about the stock right now.

Blue Nile facts

Headquarters (founded)	Seattle, Wash. (1999)
Market Cap	$660.3 million
Industry	Internet Retail
Trailing-12-Month Revenue	$287.3 million
Management	Co-Founder/Chairman Mark Vadon President/CEO Diane Irvine
Total Revenue and Net Income Growth (over last year)	(10.7%) and (34.8%)
6-Month Return	137%
Price-to-Earnings (NILE and S&P 500)	62.5 and 15.4
Competitors	Tiffany (NYSE: TIF  ) eBay (Nasdaq: EBAY  ) Wal-Mart Stores (NYSE: WMT  )
CAPS Members Bearish on NILE Also Bearish on	Amazon.com (Nasdaq: AMZN  ) Overstock.com (Nasdaq: OSTK  )
CAPS Members Bullish on NILE Also Bullish on	Google (Nasdaq: GOOG  )

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Over on CAPS, fully 209 of the 882 members who have rated Blue Nile -- some 24% -- believe the stock will underperform the S&P 500 going forward. These bears include STRONGNUFF and All-Star JakilaTheHun.

In May, STRONGNUFF wrote that the Blue Nile bear case all boiled down to price:

Really the only jewelry company that "should" be able to withstand the economic climate for the rest of this year. But I feel its stock has been pushed up recently for no good reason to justify it and will result in the stock taking a turn for the worst.

In a pitch from last month, JakilaTheHun also taps the stock as a bargain lover's worst friend:

Let's see here ... we've got a company that sells diamonds and fine jewelry online. Sounds like a crazy idea to me, but the site looks well laid out and they seem to be profitable, so I won't question the basic business model. What I don't quite understand is the market's insane valuation of this. This is a luxury retailer operating in the worst environment for luxury retailers since at least the 1970s (and maybe the worst since the Great Depression). I'm looking at the financials and I don't quite see the phenomenal growth that others are seeing. So what leads people to conclude that this company is worth $40 ?

What do you think about Blue Nile, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 135,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.