Let's take a look at three companies that just didn't live up to Mr. Market's expectations last week. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Shall we begin?

Hot shoes, sub-zero stock
 Heelys (Nasdaq: HLYS) is learning the hard way how Icarus felt when flying too close to the sun. Both of their crashes were brutal, and the sobering difference is that Heelys isn't done crashing yet. The stock has lost 80% of its value since beginning of August and dropped into penny-stock territory, but it still could, and probably will, fall even further.

The wheeled-sneaker trailblazer reported $9.8 million in revenue and a GAAP net loss of $0.20 per share. Compare that with analyst expectations -- breakeven earnings on $14.8 million in revenue -- or the year-ago quarter, where Heelys got a $0.44 profit per share on $71 million in sales. Ouch.

Loath to call a spade a spade, management isn't saying that the built-in-rollerskate fad is over. Instead, it talks about inventory management issues. Interim CEO Ralph Marks highlighted how strong the first half of 2007 was and remained adamant about his company's long-term potential. Call it a state of denial, putting on a brave face, or smearing lipstick on a pig. It's all the same.

Trends come and trends go, but truly strong brands weather the inevitable storms. Heelys ain't one of 'em. Like fellow footwear flavor-of-the-month Crocs (Nasdaq: CROX), Heelys' time in the sun has come and gone. If you really believe in shoes as an investment vehicle, our CAPS community has a few better ideas, such as brand-management specialist Iconix (Nasdaq: ICON).

Spend money to make money
How about some mobile services in Chinese? Beijing-based wireless services and media operator KongZhong (Nasdaq: KONG) reported $0.04 per American depositary share on $19.8 million in revenue, just short of the $0.05-per-share analyst consensus. Although sales were higher than management guidance, a heavy marketing effort cut into the bottom line.

Company president Nick Yang explained, "You have to invest before you turn profit" in the media business, and that's what KongZhong is doing now. In the future, that investment should pay off in nice, fat profits. Yang pointed to SINA (Nasdaq: SINA) and Sohu (Nasdaq: SOHU) as role models in whose footsteps his company is following -- and both have ridden their early marketing investments all the way from money-losing micro-caps to billion-dollar market caps with dependable earnings and cash flows.

Mr. Market saw past the promise and sliced 15% off KongZhong's market value the next day. All told, the stock is about 25% cheaper today than it was a week ago. Sounds like a tasty value proposition to me, with a side of hypergrowth.

High price tag, low value
Last and least, let's have a look at Trump Entertainment Resorts (Nasdaq: TRMP), the Atlantic City casino operator launched by the man of a thousand bad combovers.

Trump reported a loss of $5.89 per share, far worse than the expected $0.40 deficit per share, on in-line sales of about $229 million. The culprit was $239 million in goodwill and asset impairment charges, caused by "the recent increase in regional competition, the partial smoking ban in Atlantic City, and a general weakening of the economy and the credit markets."

After last week's 21% haircut, Trump's market cap is a piddling $99 million -- but thanks to a massive debt load, the enterprise value stands north of $1.5 billion. The GAAP net loss last quarter was bigger than the current share price. It takes a brave investor to touch a stock like that, notwithstanding the documented dealmaking skills of The Donald. I suggest that you don't.

Finish line
Some of these underperformers are victims of larger circumstances. Others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps and which ones are stuck in the mud for real.

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