My dueling partner Billy Fisher implies that Kobe Bryant overpaid by buying a 7-carat engagement ring at Zale (NYSE:ZLC) rather than at Blue Nile (NASDAQ:NILE). Well, Blue Nile lists only two stones of that size and larger that are priced below Kobe's price of $100,000. They're both "J" color and "SI2" clarity -- the lowest grades that Blue Nile sells. If Kobe bought a quality diamond from Zale, it looks as though he got a good -- or even a great -- price for it.

As for Blue Nile's low-gross-margin strategy, all that does is make it that much tougher for the firm to reinvest in its business. After all, lower gross margins carry with them lower potential profit margins.

On that front, Blue Nile's profit margin of 5.11% over the past year pales in comparison with Tiffany's (NYSE:TIF) 9.04%. With around 10 times the revenue and significantly stronger profit margins, Tiffany clearly has the financial wherewithal to invest in its business and fight a very good fight.

I am glad to see that Billy acknowledged Blue Nile's valuation concerns. No less an authority than Motley Fool Hidden Gems analyst Tom Gardner had this to say when closing out that newsletter service's winning position: "Blue Nile has been priced for perfection. It's a seller of gems and a gem in its own right, but at today's price, reluctantly, I'm compelled to accept the amazing rewards the market has provided." (With your 30-day free trial, you can read Tom's whole analysis.)

Unlike his brother David, whose growth-focused Motley Fool Rule Breakers newsletter service places less concern on valuation than on growth prospects, Tom realizes that there is such a thing as too much to pay. That even goes for high-class gem retailers like Blue Nile.

You're not done with this duel yet. Read the other three parts, and vote for a winner!

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.