Shares of high-end jewelry retailer Blue Nile (NASDAQ:NILE) fell 6% in after-hours trading yesterday, after what appeared to be a respectable third-quarter showing. Earnings clocked in at $0.11 a share, or $0.16 a share before stock-based compensation expenses. Analysts were expecting the bottom line to fall to $0.10 a share after a $0.13 per share showing a year ago. Net sales inched 27% higher to hit $53.2 million, also ahead of Wall Street's best guess.

The specialist in diamond engagement rings is also upping its guidance for all of 2006. It is now looking to close out the year earning between $0.70 and $0.75 a share, on a revenue range between $249 million to $255 million.

So what's with the swoon? Let's be realistic here. Since bottoming out at $24.10 in August, the company has soared 62% higher in the span of just three months. A lot of market-thumping expectations can be built into that kind of short-term gain, even if investors were reaching if they were expecting a blowout third quarter. This isn't exactly bended-knee season here. We're not talking about New Year's Eve proposals or springtime vows. This has always been a soft quarter for Blue Nile.

If anything, now should be a good time to focus on the things that the company has done right. An aggressive share buyback initiative has seen the number of fully diluted shares outstanding reduced by 10% over the past year. The company has been able to score some big-ticket purchases, including filling a $324,000 engagement ring order. (It's good to know that the recipient warmed up to the purchase, as Blue Nile has a generous 30-day return policy.)

Jewelry may not seem like a unique e-tail category. Companies like Tiffany's (NYSE:TIF) and Birks & Mayors (AMEX:BMJ) have been at it for generations. Online, (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) are popular mainstream sources, and (NASDAQ:OSTK) is running a sale on its site this week, offering pearl jewelry at 10% off its already marked-down prices. Sure, it's crowded, but Blue Nile's niche lies in the higher-end engagement rings, and that's not as competitive as you may think.

Blue Nile's bread and butter is offering shoppers its knowledgeable sales force. The typical Blue Nile rep will sell 1,000 engagement rings this year. According to Blue Nile, it would take a more conventional jewelry employee 83 years to sell as many engagement rings. Blue Nile's low-cost infrastructure allows it to hit home on price, and its non-commissioned sales force provides a smoother buying experience than the hard sell you may find at your local commissioned jeweler.

Blue Nile has been recommended to both Rule Breakers newsletter readers and subscribers of Hidden Gems. It's not too often that you find both David Gardner and his brother Tom backing the same stock. Keep that in mind the next time you find yourself on bended knee, contemplating your next buy decision.

Feel like a Rule Breaker now, do you? Check out David Gardner's growth stock newsletter as part of a free 30-day trial subscription to see if great stocks like Blue Nile belong in your portfolio.

eBay and Amazon are Motley Fool Stock Advisor recommendations.

Longtime Fool contributor Rick Munarriz proposed to his wife 16 years ago. (Back when there was no Internet. Imagine!) He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.