Pulte Homes (NYSE:PHM) just tried a promotion in which new homebuyers were given plasma TVs. The promotion increased traffic by 30% and sales by 25%. Supplying Pulte with these TVs was troubled specialty retailer Ultimate Electronics (NASDAQ:ULTE).

Ultimate Electronics' stock was up 50% in early trading on the announcement that eight new builders will be using the company's services, which include high-end home theater, home networking/structured wiring, and security systems. Last year, the company worked on 6,000 homes, and it expects to do well more than twice that volume this fiscal year. Ultimate Electronics supplies more than 25 homebuilders, including the five largest ones.

Getting builder business is part of the company's strategy to reverse a sharp drop in its business. With 65 retail stores in 14 states, Ultimate Electronics would seem to be ideally positioned. In the first six months of this fiscal year, TV and DBS (direct broadcast satellite) systems (such as DirecTV (NYSE:DTV)) were 46% of sales -- and those items are high on consumer holiday wish lists. But same-store sales for the latest quarter were down an ugly 8% from the year-ago quarter.

The company focuses on mid- to upscale products, matches competitor prices, and uses demonstration rooms for home theater and audio products. A good example of how far the company is willing to go to get a sale can be seen in its Ultimate iPod Experience for Apple's (NASDAQ:AAPL) iPod. Besides the iPod, buyers will find accessories and interactive displays to help them make their selection. Ultimate Electronics even goes so far as to offer training to enable users to store digital photos and take notes on their iPod.

As good as this story sounds, the financials are downright ugly. Debt exceeds cash by more than $50 million, and the company had negative free cash flow of $54 million over the last 12 months. The only good news is that the company's market capitalization is still less than $50 million (under 7% of sales) -- even after today's rise.

This week, Ultimate Electronics will report third-quarter results. Because turnaround initiatives have, so far, been unable to reverse same-store sales declines, the earnings news will probably be anything but upbeat. (The company has already announced that sales declined 1.7% in the latest quarter.)

When you are a lilliputian competing in a world with cash-rich giants such as Best Buy (NYSE:BBY) and Circuit City (NYSE:CC), you have to differentiate your product. So far, Ultimate Electronics has not had much success at doing this. Until the company can grow same-store sales and show a path to profitability, the stock is suitable only for speculators.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.