After a few quarters that were as impressive as cubic zirconia, online jeweler Blue Nile (NASDAQ:NILE) is finally starting to show that it can be the real deal.

The company's latest quarter wasn't exactly golden, though. Net sales fell 11% to $62.4 million, and earnings of $0.13 a share were short of the $0.16 it delivered a year ago. However, Wall Street was braced for a profit of just $0.10 a share.

More importantly, though, the company is waxing positive about its future. After generating $11.8 million in free cash flow on a trailing-12-month basis through March, Blue Nile expects to improve on that figure for all of 2009. In other words, it sees higher free cash flow during these next three quarters than it scored during the last nine months of 2008.

With sales trends showing signs of life, Blue Nile expects to be posting year-over-year top-line gains by this year's fourth quarter. Just in time, too, since the holiday quarter is the company's most seasonally potent period.

But that seems so far away, especially when you look back to last year and realize that the company waited until November to throw in the towel and concede that it had no idea how the 2008 holiday season would shape up.

"While we would prefer to provide Q4 guidance, we have very little clarity as to how the economic environment will impact consumer spending patterns for the holiday season," the company noted in last November's conference call. "For these reasons, we have decided that the prudent course is to not provide financial guidance for Q4."

I was skeptical toward the company during last year's downturn. Real-world jewelers such as Tiffany (NYSE:TIF), Zale (NYSE:ZLC), and global giant Signet (NYSE:SIG) have been smarting. This clearly isn't the right time to be selling high-end jewelry. The better bets in this climate have been the online discounters of lower-end bling, including (NASDAQ:BIDZ), (NASDAQ:OSTK), and even (NASDAQ:AMZN).

However, investors have been rallying behind Blue Nile in recent months. The stock is still well shy of its triple-digit highs of two years ago, but it has more than doubled since bottoming out in January. The decimated jewelry market is going to shake out a lot of the weaker players in the meantime, and when demand returns, survivors such as Blue Nile and Tiffany should have a little more elbow room.

So given the pessimism in November and the optimism in May, it's only natural to be cynical about the springtime cheer. Sure, the signs are encouraging, but now Blue Nile has to earn its zeal -- and its recent price gains. If Blue Nile's vision holds up, the past few months of gains will be only the beginning. If not, diamonds might give way to cubic zirconia again. 

Other Blue's clues:

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Longtime Fool contributor Rick Munarriz wonders whether gold bugs will get bitten over the apparent apathy toward jewelry as a fashion accessory. He owns no shares in any of the companies in this story and 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.