Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online jeweler Blue Nile (Nasdaq: NILE) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Blue Nile's business and see what CAPS investors are saying about the stock right now.

Blue Nile facts

Headquarters (Founded)

Seattle (1999)

Market Cap

$595.9 million


Internet retail

Trailing-12-Month Revenue

$320.5 million


CEO Diane Irvine (since 2008)

CFO Marc Stolzman (since 2008)

Return on Equity (Average Past 3 Years)


Compound Annual Revenue and Net Income Growth (Over Past 3 Years)

4.1% and (3.1%)

Price-to-Earnings (NILE and S&P 500)

49 and 13.7

Competitors (Nasdaq: AMZN)

Tiffany (NYSE: TIF)

eBay (Nasdaq: EBAY)

Wal-Mart (NYSE: WMT)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 25% of the 877 members who have rated Blue Nile believe the stock will underperform the S&P 500 going forward. These bears include All-Star TMFDeej, who is ranked in the top 1% of our community, and BuiltByNoah.

Late last month, TMFDeej wrote that the Blue Nile bear case boils down to price: "I'm looking for a few consumer discretionary stocks to short to hedge my mostly long CAPS portfolio. [Blue Nile], trading at 36 times its estimated 2011 earnings, versus 14 for a company like [Tiffany], fits the bill nicely."

While Blue Nile's low prices and strong reputation in the online jewelry space aren't lost on CAPS Fools, they just can't seem to get over the stock's seemingly rich valuation. Of course, when solid bricks-and-mortar blue chips Wal-Mart and Costco, as well as online powerhouse eBay, are all available at an EV/EBITDA under 10, Blue Nile's current price multiples aren't exactly enticing. Even when growth is factored in, Blue Nile's PEG of 2.4 represents a substantial premium to those same stocks.

To be sure, Blue Nile still seems cheaper than its fiercest online foe, Amazon. But with the economy as fragile as it is, Blue Nile's sole focus on high-priced specialty items could still easily cause it to lag the far more diversified Amazon over the next few years. CAPS member BuiltByNoah explains:

Internet traffic for this website has decreased this year and I would not expect anyone to be jumping on the "buy diamonds off of the internet" bandwagon in the near future because the economy just isn't there for it. Expect poor earnings reports coming up to shoot the stock down again. I will re-rec this as a Outperform as soon as I can see internet traffic increasing at a rate that will being producing above analyst expectation returns.

What do you think about Blue Nile, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!