Motley Fool Rule Breakers newsletter recommendation Blue Nile (NASDAQ:NILE) was up as high as 17% Wednesday after announcing earnings that beat analyst expectations by $0.02 per share. The stock is also basking in the light of a favorable research firm upgrade.

Sales in the fourth quarter, prime season for this online retailer of diamonds and jewelry, were up an impressive 30.3%. Income before taxes was up 38.3%. Ah, and the real diamond is the free cash flow, a Fool's favorite way to measure whether money is really being made. It was up 100% (to $29.6 million) from last year's fourth quarter.

The company also announced it has authorized the repurchase of up to $30 million of its own shares (yes, it about matches the free cash flow). The company sees that as a good investment because it has confidence it can "scale and grow the business with minimal capital expenditures."

Debt-free and with $101 million in cash and marketable securities -- money that would even make Diamond Jim Brady blush -- the company has plenty of cash to make other investments as they become available.

The future looks sparkling, too. Sales for the coming year are expected to rise from $169.2 million to between $200 and $212 million -- an 18% to 25% increase. Net income is expected to be between $0.67 and $0.72 a share. That prices the stock at a rich 39 times forward earnings, but for that price, you are getting a growing, high-margin Internet business that dominates its market.

You can buy high-end brick-and-mortar jeweler Tiffany (NYSE:TIF) and its $430 million in net debt (debt minus cash) for 19 times forward earnings. Slow-growing Zale (NYSE:ZLC), with 2,200 retail outlets and a net debt of $230 million, comes for just 11 times forward earnings. But add it up -- debt-free and cash-rich Blue Nile is the leader in its market with growing free cash flow.

Fool contributor W.D. Crotty does not own stock in the companies mentioned. Click here to see the Motley Fool's disclosure policy. Trivia buffs: Diamond Jim Brady was not only legendary for his collection of diamonds but for his appetite. A New York restaurateur once said he was "the best 25 customers I ever had."