Ratting Martha Out

The past few days haven't been easy for investors in Martha Stewart Living Omnimedia (NYSE: MSO  ) . After shares more than doubled during Martha Stewart's five-month incarceration, one would think that the company would be worth even more now that she is free -- well, as free as five months of house arrest can be.

Yet the market can be cruel sometimes. In fact, it's cruel most of the time. The stock had already shot up in anticipation of her release, her upcoming primetime shows on General Electric's (NYSE: GE  ) NBC, and her discovery of a cure for the common cold using nothing more than safflower oil, absorbent crepe paper, and pinking shears. Well, maybe not the last one.

So it really shouldn't come as much of a surprise to see her shares tumble in each of the four trading days since her release. The stock has gone from $33.95 to $25.21 in that time. That may seem like a beefy 26% slide over the course of a few days, but keep in mind that some folks got in when the stock bottomed out this past summer at $8.25.

But for investors who can't grasp the concept of a stock moving ahead of a newsworthy event and then selling off -- or trading at exaggerated extremes -- the solution may seem as simple as getting Martha back in prison.

To that end, here are five suggestions to make it happen:

  1. Catch Martha jaywalking.
  2. Persuade her to take that 49th hour of freedom this week.
  3. Go into your local precinct and shout out, "Martha mugged me!"
  4. Befriend crime-scene sketch artists and swap their drawings for cool Martha caricatures.
  5. Slip some snipped mattress tags into her pocket when she isn't looking.

If that doesn't work, come down to reality and try to value the company as if Martha's going to stick around. Earnings and sales peaked four years ago, and the company hasn't produced an annual profit since 2002. That's why, if the company wants to justify trading at new all-time highs, Martha Stewart Omnimedia will have to come back stronger than it was even before the insider-trading scandal broke.

Kmart (Nasdaq: KMRT  ) and its exclusive Martha merchandise lines would love to see the brand taken to new heights. Retailers like Michaels Stores (NYSE: MIK  ) and Jo-Ann (NYSE: JAS  ) probably wouldn't mind having more attention directed to those who are crafty at home as well. All this will have to happen with Martha free to revive her brand. After all, she's already played her "Get Out of Jail Free" card.

Some more related Stewartology:

Longtime Fool contributor Rick Munarriz really does think there's a cure for the common cold -- only maybe its canola and not safflower in the winning mix. He does not own shares in any of the companies mentioned in this story. The Foolhas a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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