As part of his bear position, Chuck Saletta raises two interesting points about Blue Nile (NASDAQ:NILE): a downturn in the economy and valuation. I think we both agree that these factors are crucial to Blue Nile, but we have slightly differing viewpoints about them.

There's no question that purchasing high-end jewelry is an economically sensitive activity -- probably more so than with other consumer goods. Sure enough, Signet (NYSE:SIG) and Zale (NYSE:ZLC) both noted challenging economic conditions in the U.S., such as high gas prices, as contributing factors to a slow start to their fiscal years.

Meanwhile, given its lack of overhead costs and its ability to underprice the competition, Blue Nile should be the likely beneficiary of such challenging economic conditions. Consumers who once might have been inclined to go with a name-brand purchase from a jeweler such as Tiffany (NYSE:TIF) might need to re-evaluate their options. And indeed, Blue Nile didn't seem to encounter the same difficulty as some of these other jewelers in terms of bottom-line growth in the early portion of 2007.

As for valuation, Blue Nile's price-to-earnings ratio is quite high, but it's a growth stock. Fortunately for shareholders, the company's forecasts have tended to be on the conservative side. So when the company announces its earnings on Nov. 6, I would not be taken aback by an "earnings surprise" that comes in above current estimates.

The recent valuation concerns that have contributed to analyst "sell" recommendations on this stock, such as the one Citigroup (NYSE:C) issued not long ago, has opened the door for investors to capitalize on this stock's recent pullback in price. There's not much to indicate that this company is headed for hard times. However, should our economy as a whole be headed for hard times, I believe that Blue Nile is in a much better position than any of its competitors are.

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.