Palm's (NASDAQ:PALM) stock may be up, but otherwise, things are looking down for the company. Sluggish growth and the botched launch of its Treo 750 smartphone have plagued the company in recent months. Potential acquirers are circling, but if Palm doesn't find a buyer soon, its shareholders could face a painful surprise.

Palm's fiscal third-quarter earnings report wasn't entirely lacking growth. Sales and marketing expenses increased 29%, and R&D spending rose 32%. Unfortunately, revenue edged up only 5.7% to $411 million, leaving little room for profits. Net income plummeted 61% to $11.8 million, or $0.11 per share.

In a lone bright spot, Palm's smartphone sales posted an impressive increase of 30%, moving 738,000 units in the quarter. Despite its woes, it seems the company still knows how to build solid products. But it may take a few quarters for those sales to move the needle; Palm predicts fiscal fourth-quarter revenue between $400 million and $410 million.

The bad news for Palm should be good for rivals Research In Motion (NASDAQ:RIMM) and Nokia (NYSE:NOK), who continue to gobble up growth in the mobile market. Even Apple (NASDAQ:AAPL) is moving to capture a share with its planned June launch of the iPhone.

To be fair, marketing expenditures take time to gain traction, and until they do, Palm's $504 million cash hoard should help things along. In addition, it seems the company plans to announce new products during its April 10 investor meeting.

Still, Foolish investors should be cautious. Palm has been the target of intense buyout speculation, and even CNBC has joined the circus. Suspected bidders include Motorola (NYSE:MOT), Nokia, Dell (NASDAQ:DELL), and even private equity firms like the Texas Pacific Group, with more potential suitors seeming to arrive every day.

Despite its woes, Palm's stock has surged more than 30% since January. But traders could lose interest if a buyout doesn't materialize within the next month or so. For Foolish investors, it's probably best to sit this one out for now.

We've palmed off further Foolishness:

Palm and Dell are Motley Fool Stock Advisor picks. Discover more of David and Tom Gardner's favorite stock opportunities with a free 30-day trial subscription. Dell is also an Inside Value pick.

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He's ranked 1,590 out of 24,619 in Motley Fool CAPS.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.