OK, time to get reacquainted with standardized testing. I've laid out five options below; pick the one item that doesn't belong in the grouping. Go ahead, I'll wait.

  1. Six straight quarters of negative earnings.
  2. Massive deterioration of market share.
  3. Dilutive capital infusions.
  4. The worst investing environment in more than 70 years.
  5. A 400% return in recent months.

Was your answer ... none of the above? Well, in the context of Palm (NASDAQ:PALM), you'd be absolutely correct.

Forget the past, embrace the future
The smartphone maker, having struggled to keep up with a murderer's row of competitive forces in smartphones -- including Research In Motion (NASDAQ:RIMM), Apple (NASDAQ:AAPL), and Google (NASDAQ:GOOG) -- has seen its fortunes turn around in recent months, despite abysmal financial performance.

The reason? Palm recently bet its future on a new smartphone known as the Pre. Fortunately for Palm, tech enthusiasts have raved over the Pre's innovative operating system and features. So who cares if the company is on financial life support? Investors bid up Palm's shares on the promise of the Pre being able to deliver boatloads of profit in the future.

Well, that was ugly
Well, there's one key problem at the moment: The Pre's not out yet. Even worse, no one wants to buy a tired, old Palm Centro phone when they know the Pre is just months away from release. Keeping that last point in mind, Palm warned yesterday that revenue could be off as much as 70% from last year when it reports third-quarter earnings later this month. Put another way, revenue should come in 45% below previous analyst expectations. Ouch.

How will the company finance its operations until the Pre is released sometime in the first half of this year? Palm believes it has "sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan."

However, the ante was just raised in Palm's race against the clock to get the Pre into users' hands. Yesterday's news illustrates not only how much of an all-or-nothing move the Pre release will be for the company, but how time-sensitive the release will be. If Palm delays release, it not only faces the typical threats of weakening buzz and strengthening competitors, but also another round of potential shareholder dilution.

From this Fool's perspective, the Pre shows quite a bit of promise. Not only is it a game-changer for Palm, it also provides a sorely needed shot in the arm for exclusive cell provider Sprint (NYSE:S), which will heavily market to the new gizmo. However, yesterday's news accentuated some of the risks involved with this rocketship of a stock. Tough time to launch a product, tough competition, tight timeframe. Proceed carefully -- Palm's already thin margin of error just got a bit slimmer.

Sprint Nextel is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation.

Eric Bleeker cries every time he hears Metallica’s "Enter Sandman," but other than that, he professes to be normal. He owns no position in any of the companies mentioned. The Fool's disclosure policy is just what Katy Perry is looking for, neither hot or cold, just smooth and velvety.