BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY SDAQ: BUY RATING SINCE 09/13/2016 TARGET PRICE $49.86 BUSINESS DESCRIPTION Blue Nile, Inc. operates as an online retailer of diamonds and fine jewelry worldwide. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 0.19 53.97 6.98 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -4.40-3.21 2.35 Net Income -34.60-7.63-4.24 EPS -35.30-7.96-1.98 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2016 51.20 13.67 12.00 Q3 2015 89.11 10.63 12.28 Q3 2014 114.03 10.50 14.59 Sector: Consumer Goods & Svcs Sub-Industry: Internet & Direct Marketing Retail Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History HOLD BUY HOLD BUY Volume in Millions TARGET PRICE $49.86 50 45 40 35 30 25 20 3 P/E COMPARISON 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History 0 50.26 157.39 Ind Avg 26.35 S&P 500 RECOMMENDATION We rate () a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income. EPS ALYSIS¹ ($) HIGHLIGHTS Compared to its closing price of one year ago, 's share price has jumped by 53.97%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year. Q1 0.08 Q2 0.18 Q3 0.14 2014 Q4 0.41 Q1 0.10 Q2 0.20 Q3 0.17 2015 = not available NM = not meaningful Q4 0.43 Q1 0.09 Q2 0.18 Q3 0.11 2016 1 Compustat fiscal year convention is used for all fundamental data items. Net operating cash flow has significantly increased by 175.11% to $3.96 million when compared to the same quarter last year. In addition, has also vastly surpassed the industry average cash flow growth rate of 19.00%. 's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that 's debt-to-equity ratio is low, the quick ratio, which is currently 0.51, displays a potential problem in covering short-term cash needs., with its decline in revenue, underperformed when compared the industry average of 20.5%. Since the same quarter one year prior, revenues slightly dropped by 4.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share. Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major ness within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, 's return on equity significantly exceeds that of both the industry average and the S&P 500. PAGE 1
SDAQ: PEER GROUP ALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -100% 600% UNFAVORABLE LE LITB -5% DLTH EBITDA Margin (TTM) FAVORABLE PRTS FTD NTRI LTRPA PETS FLWS 25% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $115.1 Million and $1.2 Billion. Companies with or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -100% 600% UNFAVORABLE FTD -12% LE Earnings Yield (TTM) LITB LTRPA FAVORABLE DLTH OSTK FLWS PRTSNTRI PETS Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -18.3% and 518.2%. Companies with or NM values do not appear. 6% INDUSTRY ALYSIS The internet and catalog retailing industry includes 16,000 companies with combined annual revenue of over $160 billion. Major companies include Lands End, LL Bean, Amazon.com (AMZN), Overstock.com (OSTK) and Hanover Direct. The top 50 companies account for approximately 60% of total industry revenue. The catalog retail sector consists of mail order, television and catalog channels while internet retail includes all services through online channels. Demand is driven by consumer spending, which ties the profitability of companies to their active customer base. Over the past five years, the industry pattern has shifted from catalog to internet sales. Internet sales have been the driver for overall health of the internet & catalog industry as internet use has increased to over 70% of US households. The evolution of secure user interfaces and the increased convenience of online shopping are expected to drive growth in the coming quarters. In order to increase online sales, companies offer reduced prices, free shipping and more variety. Although the broader retail industry is expected to remain sluggish during the recovery from the US economic slowdown, the internet will help drive sales. US online retail has evolved from a fledgling industry to a mature, mainstream, and integrated industry with multiple offline channels. However, the next phase of e-commerce growth will require retailers to innovate and invest in technologies that optimize the connection between online and offline elements. Failure to address risks associated with payment methods, credit card fraud and other consumer fraud could hamper sales growth. Catalog retailing has witnessed a dynamic shift in its business model from call-centers to websites. Many catalog retailers have adapted their operations to the web as a result of a change in customer preferences. Companies such as L.L. Bean and Lands End have succeeded with this strategy while also maintaining their catalog operations. By doing so, they provide services to traditional catalog shoppers and enjoy a web operation that helps keep fixed-costs down while attracting new customers. Catalogs are currently driving more than half of internet sales. The catalog industry shows a trend of sustained growth in multi-channel retailing. The two main channels, namely direct-to-consumer (DTC) and store, will emerge from the convergence of catalog and internet sales. The industry is expected to experience higher sales growth in the direct-to-consumer segment. PEER GROUP: Internet & Catalog Retail Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 40.71 478 50.26 471.91 9.54 FTD FTD COMPANIES INC 24.02 654 NM 1,139.98-77.98 DLTH DULUTH HOLDINGS INC 22.23 645 28.50 341.84 24.86 LE LANDS' END INC 18.30 586 NM 1,350.46-54.42 OSTK OVERSTOCK.COM INC 18.50 470 37.76 1,799.96 12.52 PETS PETMED EXPRESS INC 21.17 435 19.79 241.54 21.73 FLWS 1-800-FLOWERS.COM 9.95 354 26.18 1,188.98 26.98 LITB LIGHTINTHEBOX HLDG -ADR 2.98 205 NM 284.79-9.83 LTRPA LIBERTY TRIPADVISOR HOLDINGS 15.50 1,168 NM 1,538.00-37.00 PRTS US AUTO PARTS NETWORK INC 3.29 115 82.25 299.97 1.63 NTRI NUTRISYSTEM INC 35.80 1,060 34.76 526.75 30.43 The peer group comparison is based on Major Internet & Direct Marketing Retail companies of comparable size. PAGE 2
SDAQ: Annual Dividend Rate COMPANY DESCRIPTION Blue Nile, Inc. operates as an online retailer of diamonds and fine jewelry worldwide. It offers engagement products, such as gold or platinum engagement rings with a diamond center stone and loose diamonds; and non-engagement products, including rings, wedding bands, earrings, necklaces, pendants, bracelets, gifts, and accessories containing precious metals, diamonds, gemstones, or pearls. Blue Nile, Inc. sells its products through its Website, bluenile.com. The company was formerly known as Internet Diamonds, Inc. and changed its name to Blue Nile, Inc. in November 1999. Blue Nile, Inc. was founded in 1999 and is headquartered in Seattle, Washington. STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 2.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 30% of the stocks we rate. 411 First Avenue South, Suite 700 Seattle, WA 98104 USA Phone: 206-336-6700 http://www.bluenile.com Total Return 4.0 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 70% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 4.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 70% of the stocks we monitor. Solvency 4.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 70% of the companies we analyze. Income 0.5 out of 5 stars Measures dividend yield and payouts to shareholders. This company pays no dividends. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
SDAQ: Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 0.88 E 2016(E) 0.93 E 2017(E) INCOME STATEMENT Net Sales ($mil) 105.11 109.94 EBITDA ($mil) 3.15 3.98 EBIT ($mil) 1.80 3.04 Net Income ($mil) 1.29 1.98 FINCIAL ALYSIS 's gross profit margin for the third quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. Sales and net income have dropped, underperforming the average competitor within its industry. has liquidity. Currently, the Quick Ratio is 0.51 which shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. At the same time, stockholders' equity ("net worth") has greatly increased by 60.78% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 40.56 33.61 Total Assets ($mil) 109.63 101.63 Total Debt ($mil) 0.46 0.50 Equity ($mil) 18.63 11.59 PROFITABILITY Gross Profit Margin 20.92% 20.17% EBITDA Margin 2.99% 3.61% Operating Margin 1.71% 2.76% Sales Turnover 4.30 4.80 Return on Assets 8.70% 10.16% Return on Equity 51.20% 89.11% DEBT Current Ratio 1.05 0.99 Debt/Capital 0.02 0.04 Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) 12 12 Div / share 0.00 0.00 EPS 0.11 0.17 Book value / share 1.59 1.00 Institutional Own % Avg Daily Volume 165,831 129,257 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
SDAQ: RATINGS HISTORY Our rating for has not changed since 9/13/2016. As of 2/16/2017, the stock was trading at a price of which is 1.7% below its 52-week high of $41.39 and 69.3% above its 52-week low of $24.04. 2 Year Chart HOLD: $29.02 BUY: $33.34 HOLD: $27.59 2015 2016 BUY: $35.46 $50 $40 $30 MOST RECENT RATINGS CHANGES Date Price Action From To 9/13/16 $35.46 Upgrade Hold Buy 2/17/16 $27.59 Downgrade Buy Hold 8/10/15 $33.34 Upgrade Hold Buy 2/13/15 $29.02 No Change Hold Hold Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 2/16/2017) 41.18% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 31.78% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 27.04% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. The current P/E ratio indicates a significant discount compared to an average of 157.39 for the Internet & Catalog Retail industry and a significant premium compared to the S&P 500 average of 26.35. For additional comparison, its price-to-book ratio of 25.56 indicates a significant premium versus the S&P 500 average of 2.94 and a significant premium versus the industry average of 17.14. The price-to-sales ratio is well below both the S&P 500 average and the industry average, indicating a discount. The valuation analysis reveals that, seems to be trading at a discount to investment alternatives within the industry. Price/Earnings 50.26 Peers 157.39 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a significant discount to its peers. Price/Projected Earnings 43.77 Peers 95.83 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a significant discount to its peers. Price/Book 25.56 Peers 17.14 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant premium to its peers. Price/Sales 1.01 Peers 3.81 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 24.70 Peers 23.29 Average. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth NM Peers 2.94 Neutral. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. 's negative PEG ratio makes this valuation measure meaningless. Earnings Growth lower higher -7.96 Peers 153.50 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher -3.21 Peers 26.62 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5