Instead of telling homeowners how much their homes are worth, the market is letting HouseValues (NASDAQ:SOLD) know how much it thinks the company is worth.

The answer? Not much. Less than twice the value of the cash on its balance sheet, and it could get worse. Last night's fourth-quarter report showed a continuing slide in the company's Realtor lead generating model. Revenue fell by 15% to $21.5 million, as real estate professionals bailed out of the site, and those who stuck around spent less.

I know what you're thinking. Tug the sleeve of any homebuilder and you'll hear a tale of woe. However, HouseValues doesn't have to necessarily suffer in this climate. When there is a glut of available homes on the market and a dearth of buyers, Realtors should be turning to lead-generating services like the company's JustListed, HomePages, and websites to gain an edge. It isn't happening.

Last night, Move (NASDAQ:MOVE) posted a profit on growing revenue. Although they are not identical models, Move's ownership of sites like and seem to be benefiting from the same trend that HouseValues blames for its shortcoming.

You don't need to hear me say (again) that I believe that the model is flawed. I've written about the holes many, many, many times.

However, when the time came to state an opinion on this Motley Fool Hidden Gems recommendation for the Motley Fool CAPS stock-rating service, I went ahead and pegged it to beat the market for what appeared to be a bottom. I was wrong.

With nearly $3.20 a share in cash, the downside appeared limited when the company was profitable. Unfortunately, it's not profitable right now. For the December quarter, it posted a loss of $0.22 a share. Yes, most of that was due to an impairment charge (as the company shuttered its mortgage lead generation business), but even if you work your way up to adjusted EBITDA, HouseValues posted negative results there as well.

Wait a minute. Didn't HouseValues acquire The Loan Page just 15 months ago? It did. It doesn't matter now. It's bailing out of that space. The company's cash-blessed balance sheet could certainly stomach the $2 million loss in that division this past quarter, but it sees the niche as too cutthroat to be feasible for now.

Generating leads isn't easy. Just ask Autobytel (NASDAQ:ABTL) how hard it's been to get car buyers into showrooms, or ask InsWeb (NASDAQ:INSW) about its tough times pitching insurance products.

Putting all of its eggs in the real estate market is dicey -- especially given the sequential and year-over-year declines there -- but at least it's a segment that the company understands. Unfortunately, it just doesn't understand it well enough.

Until Realtors come back, the model is broken. Until cash flow bounces back, the cash cushion is a mirage. Until HouseValues proves that it can be profitable in this competitive market, I would be very careful about diving into the shares.

For more Foolish homebuilding:

HouseValues is a Hidden Gems stock recommendation. It hasn't panned out for Tom Gardner, but thankfully his average pick is smoking the market.

Longtime Fool contributor Rick Munarriz isn't interested in selling his home, even though the once red-hot South Florida market is cooling off quickly. He does not own shares in any of the stocks mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.