Green and red are traditional Christmas colors. Fortunately for RedEnvelope (NASDAQ:REDE), in the all-important third quarter the company cut down on the red and gathered quite a lot of green.

How much green? $47.5 million in total revenues and $2.8 million ($0.30 cents per share) in earnings, to be exact. Since the four analysts' estimates of revenues for the quarter ranged from $42 to $46 million and earnings were predicted to come in somewhere between $0.27 and $0.30, investors who exhibited less caution than I did last month will now likely be rewarded. I would not be surprised if an analyst upgrade followed.

Main highlights for the quarter include a 21% jump in orders shipped along with a 10% rise in revenues per order. Mix them together and, like a good Christmas gift, you get a cozy 32% rise in total revenues. Also of note -- classified under the "we would have done even better if..." category -- is the $1.5 million in revenues the company will apply to its fourth-quarter statement because of weather-related delays in delivery shortly after Christmas. Not to worry; these were orders already scheduled to arrive after Christmas and were delayed for a legitimate reason, so the fulfillment fiasco of yesteryear seems to be history.

Should you be a buyer at these levels? Without a steady stream of profitable years behind it, valuing RedEnvelope is a little more difficult because standard P/E ratios do not apply. A forward P/E ratio can be applied to 2005-2006 earnings (the company's fiscal year runs until March), but since it is just turning profitable, that number is too inflated. Instead, looking at price/sales ratio can be of some help. Currently, RedEnvelope sells for 1.3 times sales, which is quite favorable when compared with's (NASDAQ:AMZN) 2.60 P/S or Blue Nile's (NASDAQ:NILE) 2.93, but a bit high when measured against the industry average (just under 1.0) and Sharper Image (NASDAQ:SHRP) at 0.36.

I think the best way to evaluate this Hidden Gems selection would be to carefully scrutinize its success in developing a recognizable brand for unique online gifts. Last night's announcement is a significant step toward that goal (double-digit annual growth in orders helps too). If the company can continue to develop unique gifts and attract site visitors, the profits should follow, perhaps as soon as fiscal year 2006.

And while I wouldn't consider opening a small position here to be outrageous, the value investor in me would tend toward letting the stock's low trading volume present me with a lower ask price somewhere during the next two to three months.

Fool contributor MarkoDjuranovic 's mom loves her Claudette cosmetics valet, and his dad claims he uses both the rotating electronic tie rack and the leather watch case -- all RedEnvelope gifts. Marko does not own shares in any companies mentioned in this article.