Nathan, you're absolutely right. The analysts are overly optimistic with their projection of 30% growth for Blue Nile (NASDAQ:NILE). A company's long-term growth rate rarely exceeds its Return on Equity (ROE). With $82.44 million in book-value equity and trailing-12-month income totaling $8.91 million, Blue Nile's ROE clocks in at 10.8%. For contrast, giant conglomerate General Electric's (NYSE:GE) similarly calculated ROE shows up at 16.1%. With a lower P/E, stronger ROE, and a 2.5% dividend yield to compensate for the risk of investment, is there any wonder why I'm not selling my GE stock to take a flier on some pretty stones?

As for Blue Nile's cash hoard, as I pointed out dueling over Cisco (NASDAQ:CSCO), too much cash in the hands of untrustworthy management becomes both a dangerous and an expensive asset to hold. Why exactly does Blue Nile need six months' worth of revenues held as cash? Are its operations on that shaky a foundation? Is it looking to di-worse-ify itself by making a series of "empire-building" acquisitions? Show me either intelligent deployment of that cash or a dividend to return it to shareholders, and I'll start viewing it as an asset.

A negative cash conversion cycle is wonderful to have in a deflationary environment, where the cost of products keeps dropping. In case you haven't noticed from the recent CPI numbers or the record profits rolling into oil giants like ExxonMobil (NYSE:XOM), commodity-driven inflation is on the rise. In an inflationary environment, managing your own inventory is often cheaper than letting suppliers manage -- and reprice -- goods you're trying to sell.

Bottom line: Don't be fooled by a shiny rock, or you'll end up paying diamond prices for cubic zirconium shares.

Wait! You're not done. This is just a quarter of the Duel! Don't miss Chuck's bearish beginning, Nathan's bullish response, and Nathan's final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.

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At the time of publication, Fool contributor Chuck Saletta owned shares of General Electric. Blue Nile is a selection of both Motley Fool Hidden Gems and Motley Fool Rule Breakers. The Fool has adisclosure policy.