Diamonds are an investor's best friend at NILE

A few years ago, when I was between jobs, one of the affiliate sponsors that showed up on the radar for my Honda Report site was Blue Nile.

The affiliate sponsor thing was something I tried briefly, but didn't follow up on once I got back into a full-time job. But I never forgot some of those ads. Blue Nile's concept — selling jewelry over the internet — seemed preposterous. Where's the security? I liked the marketing, though.

Fast forward to August 7. Today. An outrageously successful second quarter, plus a nice appearance on yesterday's Fast Money proved positive, for sure. Every guy on FM gave Blue Nile (NILE) a strong thumb's up. But it was the report that gave the stock a 16% boost today.

In fact, while NILE closed at $82 yesterday, by the opening bell, it was down to $78.74. Buyers fought for scant shares. The float is a megaer 11 million shares. The demand pushed the stock to $96.05 by mid-day before NILE closed at $95.17, an all-time high. Quite insane for a stock that was $40 in mid-March.

NILE is a classic momentum stock with great fundamentals. As in zero debt. Or maybe the is the 21st century fundamentally strong stock that happens to have great momo. I wish I hadn't missed this mover, which reminds me a tad bit of Garmin's move last week. I passed on GRMN on the eve of earnings at $83. The stock hit $100 earlier today.

Is NILE still a buy at a P/E of 115 and forward P/E of 85? Depends on how much it can accelerate growth. In Q1, year-over-year revenue growth and earnings growth were each 34%.

More recently, Shortsqueeze.com listed short interest in NILE at a whopping 24%, which would explain part of today's massive move.

I wonder how NILE delivers its product (diamonds) with so much security. And if the U.S. economy is slowing, as all indicators show, how robust are NILE sales abroad?

As for competition, Tiffany's and Zale are hardly prepared to challenge Blue Nile in cyberspace. And therein lies the rub. Blue Nile's margins are substantial because of its business model — no bricks and mortar. Sounds like a perfect fit for my portfolio. Maybe not at $95, but somewhere. This huge runup of 30 percent in the last four sessions means the stock is due for a pullback sooner or later. Kinda like Garmin, which never really has found a new floor since blasting off after the Q2 report.

When the stock rests, I may be hunting for an entry point.