Earlier this year I wrote about my positive view on online wedding and lifestyle company XO Group's (NYSE: XOXO) long-term outlook. Almost halfway through the year, it's up almost 11%. You shouldn't pick your stocks based on previous performance, though, so let's take a look at what's going on behind the scenes and examine the reasons that investors might want to buy, sell, or hold the stock.

According to the most recent earnings call, revenue for the first quarter was up 8.1% compared to this time last year. Even better for investors, gross margins improved by 2.8%, meaning the company got to keep more of those revenues than it did in 2011. More cash on hand is great for an expanding company boasting zero debt on its balance sheet.

Competitor Martha Stewart Omnimedia (NYSE: MSO), on the other hand, reported revenues 6.5% lower than its 2011 first-quarter sales, and an overall operating loss. Ouch.

XO Group must be doing something right for consumers in this segment, and it looks like the company's executive team agrees: 17.73% of insiders own stock in the company, which is a great sign for investors.

Online advertising is the major revenue generator for this company -- accounting for 73% of the company's overall sales -- which means it needs to constantly invest money to keep its brands (TheKnot.com, TheNest.com, and WeddingChannel.com, just to name a few) fresh and relevant. Historically, it's done a great job at this, but a recent format switch in the online message boards may have gone overboard.

Last week the company unveiled the new look in part of its online community at TheNest.com, and the site's daily page views have dropped more than 40% since then. Users jumped ship to create a new community filled with replicas of the old site's message boards.

While it's likely that this will pan out similar to a Facebook format change and users will return, it's definitely something investors should be watching, as it could potentially have long-term effects if the company has tarnished its brand reputation at all.

Over the years, XO Group's earnings have been inconsistent at best. Its net income has fluctuated from almost $12 million in 2007 to negative $4.8 million in 2009, then back up to nearly $6 million in 2011, and its stock price has reflected as much. And if the dot-com bubble taught us anything, it's that an advertising-based business model is a shaky stool to stand on.

I have a lot of faith in the management team and the company's future, which is why I own the stock, but I also like to make sure I understand the arguments against any company I own. And while XO looks great, the Fool thinks it's identified an even better opportunity. Check out our research report detailing the Fool's top stock for 2012. It's free for our readers, so click here to grab a copy today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.