Diamond retailer Zales' parent company is under attack from a short-seller who claims Amazon is encroaching on its business

AP/Paul Sakuma

A Zales jewelry store worker looks at watches in San Bruno, Calif.

• Diamond jewelry retailer Signet Jewelers, which owns Zales and also operates Kay Jewelers and Jared brands across the country, is overvalued, according to a hedge fund manager.
• The company sold its books of credit to outside vendors this year, which will cut into critical holiday sales, said Matthew Kliber, who runs a short-selling hedge fund at Gracian Capital.
• Kliber made the remarks at the Kase Learning Shorting Conference on Monday in New York.

One of the world's largest diamond companies, Signet Jewelers, is suffering from a host of credit issues at the same time that Amazon encroaches on its business, according to one short-seller.

Signet, the parent company of retail diamond distributor Zales, has "same store sales, gross margin and credit risk," along with credit headaches, said Matthew Kliber, founder and portfolio manager of Gracian Capital.

Signet, which bought Zales in 2014 for $1.4 billion and also operates stores under the Kay Jewelers and Jared brands, "relaxed its credit standards" the past three years, Kliber says, boosting sales by selling to people that would not have qualified for its diamonds otherwise. The store recently sold its prime and subprime books of business to outside vendors though, which Kliber says will impact sales due to stricter standards.

"This will be the first holiday season in which the company outsources its subprime credit," says Kliber, during a presentation at Kase Learning's Shorting Conference in New York on Monday.

These credit issues, Kliber notes, are happening at the same time Amazon is moving into the space. The ecommerce giant filed for the trademark "For Keeps by Amazon" in September. The application notes that the patent would be for both "precious metals and their alloys and goods in precious metals" and the "online retail sales of jewelry."

Shares of Signet were flat at $52.54 in late morning trading on Monday.

Signet did not immediately return requests for comment.