The Swedish word for "short story" is "novell," and the software maker that goes by that name is in the middle of quite a sad tale.

Novell (NASDAQ:NOVL) reported $0.03 of quarterly, non-GAAP earnings per share on Wednesday, at the low end of expectations, along with $278 million of gross revenue. The future looked no brighter, as management issued lower guidance for the next quarter.

As a result, the stock took a brutal beating overnight. The price dropped by more than 17% by midday, but it's still not cheap at 60 times trailing free cash flow. Pricey valuations like that are usually afforded to fast-growing companies like Google or Novell competitor Red Hat (NASDAQ:RHAT). The multiples are getting harder to justify as trailing earnings and cash flows keep shrinking -- after two quarters in the red, this most recent outing just barely squeezed out a tiny profit. And I can't think of a software company with weaker margins across the board than Novell's.

The recent stock-repurchase program seems designed to appease short-term traders, not investors with a long-term commitment. As I just noted, the shares aren't exactly trading at garage-sale prices, and I'd be shocked if there weren't any better opportunities for investing that cash.

But it seems that the market largely wants to believe the Novell story. Every time the price drops back toward reasonable valuations because of earnings warnings or other bad news, it soon starts to creep upward again.

It can be argued that what's good for Red Hat Linux is good for Novell's SuSE product, too, but that's not an entirely fair comparison. Though SuSE is second only to Red Hat in the commercial Linux market, and remains the most potent weapon in Novell's arsenal, the company is still trying to resuscitate the dying Netware operating system. It's pumping cash into projects like ROC -- a middleware system that helps administrators manage Linux and Netware servers through a common toolset -- that seem designed to prolong the life of the aging operating system.

I'm afraid it's all iron lungs and defibrillators at this point, and Novell would probably be better off as a pure Linux company. Spin off the Netware support or sell it to a consulting expert like IBM (NYSE:IBM), and go up against Red Hat in a two-horse race on equal terms. That might transform Novell from an aging star, desperately clinging to past glories, into a lean and hungry specialist in a much hotter market. Now that's a story I'd love to read.

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Fool contributor Anders Bylund is an Ubuntu man, having cut his teeth on Debian Slinky. If none of that makes any sense, Novell might not be a stock for you. He holds no stake in any company discussed, and disclosure rules are there to make sure he'd tell you otherwise.