News services reported today that a government witness who testified in the Martha Stewart obstruction of justice trial has been accused of perjury. Martha Stewart Living Omnimedia's (NYSE:MSO) stock surged some 18% in trading earlier today on the news.
Yes, the stock surged 18% on just the rumor that this news was coming out. It ended the day up about 10%. Ridiculous, you say? Absurd? We couldn't agree more.
The witness is a forensic scientist and ink expert who works for the Secret Service, and happens to also be named Stewart -- Larry F. Stewart, no relation to Martha. But you'd think Mr. Stewart was the smoking gun that not only was going to get Martha off but triple her company's profits over the next year.
Neither will happen.
"We are quite confident that the false testimony will have no impact on the convictions of Martha Stewart and Peter Bacanovic, for both factual and legal reasons," Manhattan U.S. Attorney David Kelley said at a news conference.
Mr. Stewart's testimony related to a worksheet prepared by Bacanovic, who was Martha's broker. But Bacanovic was cleared on the only charge related to the worksheet -- that he added an "@60" notation, presumably to support Martha's assertion that she had an order in to sell her ImClone (NASDAQ:IMCL) stock at a specific price. Blah, blah, blah.
It doesn't matter. The story doesn't change. Martha was convicted on all charges, including obstruction of justice and making false statements. She'll be sentenced on June 17 and likely serve a year in jail.
But even if that didn't come to fruition, even if through some Hail-Mary pass this allowed for a successful appeal, does it warrant an 18% jump in MSO's stock price? Unless you are a day trader, you likely -- and rightly -- stayed away from this one. Nothing fundamentally changed in the company today. There isn't any greater visibility on future earnings or revenue than there was yesterday.
The manic speculation does, however, raise one important consideration for Martha the company. Can it thrive without its chief domestic goddess? The market's reaction today apparently indicates it thinks she needs to be out at the forefront for the company to succeed. That's a debatable point. But it's certainly one investors should seriously consider anytime a prospective investment is so dominated by the face of its executives. Would Microsoft (NASDAQ:MSFT) founder without Bill Gates actively involved in setting its direction? Apple (NASDAQ:AAPL) certainly did without Steve Jobs. Then again, those businesses are entirely different than sheets, tablecloths, and the latest high-tech gardening apparatus.
Nonetheless, David Gardner, who has been holding Martha Stewart Living Omnimedia in Motley Fool Stock Advisor since Nov. 2002, thinks the company has gotten short shrift. So far, he's garnered nice returns while being patient and letting Martha's travails run its course. That's the type of behavior we all could learn from in our own investing.
Bob Bobala doesn't own any of the companies mentioned in this article, though he could use some good floral arrangements.
