The Chase for the Nextel (NASDAQ:NXTL) Cup is winding down as the Ford (NYSE:F) 400 caps another strong year for NASCAR. A tight race between leader Kurt Busch and his Smirnoff Ice/Sharpie Ford and Jeff Gordon's DuPont (NYSE:DD) Chevrolet, Jimmie Johnson's Lowe's (NYSE:LOW) Chevrolet, Dale Earnhardt Jr.'s Budweiser (NYSE:BUD) Chevrolet, Mark Martin's Viagra Ford, and Tony Stewart's Home Depot (NYSE:HD) Chevrolet has created another checkered flag finish -- fueling the sport's No. 2 spot in viewership, second only to the NFL.

With NASCAR's Cup banking the corner at high speed, Action Performance (NYSE:ATN), a maker of motor sports merchandise, has been waved a black flag for its increasing inventories and decreasing sales. For the fourth quarter, the company posted a net loss of $2.9 million from sales of $97.4 million. Compare this with the same quarter a year ago, when it earned $2.8 million on sales of $105.8 million.

The loose wing nut from the quarter unfortunately is characteristic of the type of year this company has had. For 2004, Action Performance's revenues came in at $344.2 million -- a decline of 18.1% when excluding the contributions from the Funline acquisition. The company's net income for the year crosses the line at an engine-sputtering $500,000, or $0.03 per share -- severely off its 2003 earnings mark of $24.2 million, or $1.33 per share.

From a valuation standpoint, things don't appear any better. With cash of $12.6 million and long-term debt of $11.9 million, Action Performance has an enterprise value (EV) of $197.2 million. For 2004, the company produced $5.9 million in structural free cash flow (SFCF), giving it an EV/SFCF of 33. There is little attractive about this high-RPM valuation for a company whose growth is stuck in low gear.

With the black flag waving, it's time for Action Performance to make a pit stop. For 2005, the company will need to figure out a way to draft behind the blistering performance of NASCAR. Until the company proves itself, be a spectator rather than a speculator.

Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.