It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. 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. Today, there's too much of a bad thing, not much on the big screen, and an assortment of castles in the sky.

Promises, promises
Let's start with (NASDAQ:OSTK), the online discount retailer with the flashy CEO. This time, even Patrick Byrne was disappointed by the results, as Overstock delivered net losses of $1.19 per share, far worse then the $0.82 loss Wall Street had expected. But that's not the bad news. Byrne has been willing to take losses before, as long as they come with substantial sales improvement. This one didn't.

In fact, despite increased ad spending and new marketing methods like radio and print spots designed to raise brand awareness, revenues came in at only $158.7 million, 6% below the year-ago period. And in the report, Byrne noted that early Q4 results are tracking below 2005 levels as well.

Management is now happy with survey results showing that Overstock brand awareness on the street is comparable to that of (NASDAQ:AMZN), and marketing campaigns now target conversion instead. That means converting site visits into sales, and one would assume that generous sale promotions will play a prominent part, alongside the technical improvements Byrne outlined that should point customers toward items they might actually want to buy.

On the upside, Byrne's candid disappointment and seeming disillusionment are refreshing. I sold my stake in Overstock about a year ago, as the company's leader embarked on a crusade against naked short-selling. It seemed to me at the time that Byrne had lost track of what really matters in business -- producing results -- in favor of chasing windmills that may or may not have any real impact on his business. Good thing I sold, too -- the stock has dropped another 60% since then.

But now he's describing his technology platform as "a smoothly-running technology platform upon which to grow the business (just as growth has died)." And at the end of the release, there's this honest assessment of the situation:

"I have been unsuccessful at predicting the future for a while, but here are my thoughts on the subject [IT problem] . Who knows: taken together, these factors may (or may not) give us a boost during the holidays. Or they could be offset by unforeseen factors."

Over the past couple of years, Overstock has been run as if sales growth were a sure thing. That is changing now. It remains to be seen how well Byrne responds to the new market reality, and I'm not ready to consider hitching my wagon to this filly again until after the holidays. These are the results that matter, and another disappointing sales performance would be a solid nail in that coffin lid. Conversely, a stellar season would breathe new life into this patient. Final verdict: Wait and see.

I max, you max, we all max ...
We're moving on to larger-than-life movie theater technologist IMAX (NASDAQ:IMAX). Estimates for the quarter hovered around a $0.05 per-share profit, but IMAX didn't install a single new screen during the quarter and the two major movie adaptations turned out to be flops; the net result ended up as a $0.28 loss per share. Sales dropped 38% year-over-year to $20.7 million.

Management blamed slower-than-expected construction and permitting for the theater orders in its backlog. In an attempt to spin the slippage as a good thing, it noted that the project will eventually reach completion and contribute to a strong 2007 instead. And while the company was pleased with the five new contracts signed in this quarter for a year-to-date total of 25, when these screens will actually be installed remains questionable with IMAX's track record. However, all is not lost with this upcoming quarter, during which IMAX hopes to install as many as eight screens. And next year's film slate looks great, with both Spider-Man 3 and Harry Potter and the Order of the Phoenix getting the huge-screen treatment.

But by 2007, great results might be a mere afterthought. The company has been on the sale block since this spring, but has been unable to find buyers at the prices management had expected. In August, IMAX authorized its advisors Allen & Company and UBS to seek deals at a lower price. That didn't work out either, so the price tag has shrunk again.

Whether IMAX ends up a small cog in some media giant's huge machinery or is taken private by hedge funds or investment banker consortia, it looks like the once-promising stock is nearing the end of the road, with its tail between its legs. It's a shame, as I still believe in the long-term viability of the business itself, but that's life on the Street.

Put it in reverse
Our final underperformer this week is Nortel Networks (NYSE:NT). The networking infrastructure specialist reported a $0.02 loss per share where the analysts had hoped for a $0.01 gain, though sales ticked up a strong 17% to $2.96 billion. And Nortel's management, bored with the view in penny-stock land, also announced a 1-for-10 reverse stock split.

Except for a brief burst in early 2004, the shares have traded below the exchange-mandated $5 limit for nearly five years, putting the stock at constant delisting risk. Many mutual funds won't buy stocks under $5 either, and per-share performance becomes more granular with fewer shares outstanding. These are the reasons why rivals Ciena (NASDAQ:CIEN) and JDSU (NASDAQ:JDSUD) recently went through with their reverse splits, and the same reasoning applies for Nortel. Splits, whether of the reverse or straightforward varieties, don't have any real impact on business operations or the value of the company, but psychology plays a real part in investing too, and it's a good idea to follow the market's rules.

CEO Mike Zafirovski said that "[p]ricing pressures and the speed at which our revenues are shifting to next-generation, early-cycle products is increasing our challenge to drive profitability improvements." The target here is a double-digit operating margin by 2008, up from the negative operating margin just reported.

Initiatives include unloading non-core businesses, a sweeping organizational restructuring with four reportable segments, and a buzzword-heavy selection of management changes like the Lean Six Sigma and Business Transformation programs. These programs always sound good on paper, but I've seen the Six Sigma idea badly implemented and leaving no lasting improvement at the company in question (which shall remain anonymous to protect the innocent). The presence of other business-improvement projects alongside Six Sigma is a red flag for me, as that bungled program was supposed to mingle with ideas from Extreme Programming, Jim Collins' Built to Last, and a mishmash of other trendy management programs of the time.

One can only hope that Nortel does a better job, as its operations sorely need some tightening. There's a lot of talk about consolidation in the networking field, and a company like Cisco (NASDAQ:CSCO), with its $13 billion of net cash ($19.5 billion in cash and short-term investments and $6.5 billion in long-term debt), could certainly afford to snap up whichever of its weaker colleagues it deems valuable. Maybe Cisco management could make something great out of Nortel's talent pool and product pipeline. But that's just me speculating.

Take two of these and call me in the morning
Some of these underperformers are victims of larger circumstances, while 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 really are stuck in the mud. Come back next Monday, and we'll take a look at another batch of mishaps and disappointments. It'll be fun and educational.

Further Foolish Reading:

Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at theMotley Fool Inside Valuenewsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a30-day trial subscriptionto see whether bargain-hunting is right for you. Overstock is a formerRule Breakersrecommendation, and IMAX is a current one. is aMotley Fool Stock Advisor selection.

Fool contributorAnders Bylundno longer holds any position in the companies discussed this week, though he used to own a few Overstock and IMAX shares and wishes he could buy Cisco. The Fool has adisclosurepolicy that won't let him do that, though, and you cansee his current holdingsfor yourself.