When looking at any IPO, it's worth remembering that when a company does go public it is a financing event for the company. It is an opportunity for it to raise cash, and it's often an opportunity for owners and investors to realize a portion of their investment. By no means should an IPO be considered a noteworthy event for which investors should line up with their hard-earned dollars in hand.

All this leads me to Odimo (NASDAQ:ODMO), which went public in February and has seen its shares slowly drift lower. Wednesday's fourth-quarter earnings release doesn't look like it will help.

Odimo is an online retailer of diamonds, watches, and other high-end goods through three websites that the company operates: ashford.com, worldofwatches.com, and diamond.com. After a look at Odimo's sites, it's pretty clear that the primary competition out on the Web is Rule Breakers recommendation Blue Nile (NASDAQ:NILE).

In a way, Odimo is a throwback to the bubble days when companies went public having never made money or proving their raison d'etre. In fact, Odimo's prospectus shows that the company has never reached operating profitability or a positive free cash flow status. Maybe it will eventually, but it's certainly an open question right now.

The company has tied its future to marketing arrangements with Yahoo! (NASDAQ:YHOO) and Microsoft's (NASDAQ:MSFT) MSN, and believes that these agreements drive increased sales. These costs have been climbing for Odimo and management expects them to continue climbing. After taking a little spin through the search engines, querying "engagement ring," I can see why. In my brief, highly unscientific experiment, I perused three search engines and received a number of jewelry companies as matches, which explains why the company is seeing increased advertising expenses. Perhaps more troubling is that with the exception of MSN, where Blue Nile and Odimo's diamond.com both came up at the top of the heap, competitors consistently turned up higher in the results.

I can't help but think that in order to survive and thrive, Odimo might be better off with fewer websites and a more consolidated marketing effort focused on one brand. As an example, the company currently sells the same watches and diamonds across multiple sites and, if using the portals is the plan to draw in customers, that means it will end up spending money to advertise watches and diamonds to draw traffic to multiple sites.

One of the best pieces of Foolish advice that floats around here is to invest in a manner that allows you to sleep at night. For most of us, that means avoiding IPOs, and in the case of Odimo that's exactly what I recommend. Sit back and, if you're curious, follow the story, but let the company prove itself and deliver some free cash flow before taking the dive yourself.

Does Blue Nile float your boat? Do you like taking on more risk for a potentially higher reward? Then take a free, no-obligation trial today to Motley Fool Rule Breakers.

Fool contributor Nathan Parmelee owns shares in Blue Nile. The Fool has a disclosure policy.