BOSTON ( TheStreet) -- Shares of Bluefly ( BFLY) rose 12% intraday yesterday.

Blue who? You may never have heard of the New York-based company, but major shareholders in the designer-apparel discounter include Rho Capital, which recently raised its stake, Soros Fund Management, the hedge fund company of George Soros, and Maverick Capital, run by Lee Ainslie.

The pint-sized Bluefly, which has a market value of only $76 million, was founded shortly before the dot-com bust that throttled stocks in early 2000. Just in the fourth quarter, the struggling company swung to a profit of $270,000, or 1 cent per share, from a loss of $150,000, or 1 cent, a year earlier, and it's finally on the cusp of sustained profitability. Revenue, meanwhile, stretched 17% to $29 million.

Still, profit margins shrank, due to a higher proportion of sales of lower-earning luxury items. The balance sheet, on the other hand, holds more than $10 million of cash and no debt. A recent inventory investment and successful Closet Confessions marketing campaign boosted average order size and customer additions during the fourth quarter. As fashion shoppers find their way to its site, expansion will ramp up.

Management is excited about the recent launch of fragrance and eyewear and the potential offered by the higher-margin contemporary business. Bluefly's stock has surged 294% since the March 2009 market low and 18% in the past 12 months. The company's accumulated GAAP loss has narrowed from 88 cents in fiscal 2008 to 32 cents in fiscal 2009 to 19 cents in fiscal 2010. The latest quarter marked the first profitable period since the recession.

Bluefly's stock, rarely discussed by the media, is an attractive Internet retail play. It trades at a book value multiple of 2.3 and a sales multiple of 0.8, discounts of up to 80% to Internet-retail peers. It has rallied 48% since TheStreet Ratings recommended it on May 26.

Although the economic and market outlook are murky, given crude oil's astronomical rise and uncertainty pertaining to quantitative easing's conclusion, Bluefly is a stock to watch. It is on verge of passing the crucial $3 mark, and despite its small stature and thin trading volume, offers a certain amount of countercyclical appeal, given its off-price fashion strategy.

Bluefly sells designer brands at discounts ranging from 20% to 70%. Bluefly, which caters to women but also sells designer and clothing accessories for men, sells prestigious brands, including Gucci, Burberry and Armani. The biggest obstacle to growth has been name recognition. But now that the equity market is booming and consumer spending is accelerating, retail acquisitions are being announced. Since Bluefly has now recorded a profitable quarter, it may draw attention from larger discounter suitors.

However, investors shouldn't bank on that outcome. Bluefly still sports some troubling metrics. It has diluted shareholders in the past. The float rose from 19 million shares to 25 milllion, year-over-year, in the latest quarter as return on equity improved from negative 12% to negative 9.6% and return on assets rose from negative 19% to negative 14%.

Yet, a climb into positive territory may be required to confirm to investors the company's long-run viability. Internet retail has boasted many top equities since the recession, including Amazon ( AMZN), which has returned 158% since the March 2009 low. Amazon, considered the Internet-retail bellwether, has increased its sales 32% annually, on average, since 2008 and net income 34% a year, on average.

Bluefly, on the other hand, has suffered annualized sales declined of 1.1%. Although its operations have been streamlined, a major push is necessary to kick-start sales growth. The latest quarterly jump, 17%, is reassuring, but not necessarily repeatable. There aren't any sell-side analysts that cover Bluefly.

Of the 30 largest institutional holders, which control the vast majority of the free float, nine increased their stakes in the latest reporting period, one sold and the remainder held steady. According to various measures, the stock is owned upwards of 90% by institutions and average trading volume is as low as 6,000 shares daily. So getting out of your position without affecting the price is difficult. This is a stock with anomalous risks.

Still, given the big-name backing of Soros, Ainslie and the like, it's a compelling company. Another major stake holder is Prentice Capital which holds 7.7% of shares outstanding. Prentice is run by former SAC Capital traders Michael Zimmerman and Jonathan Duskin.

-- Written by Jake Lynch in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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