NEW YORK (CNN/Money) - A rally in Martha Stewart Living Omnimedia went from sizzle to fizzle Monday as investors sobered following last week's news that Martha Stewart would not be going to jail anytime soon.

Shares in the lifestyle publishing and retail company sank as much as 8 percent and Martha Stewart Living Omnimedia (MSO: Research, Estimates) closed at $10.94, down more than 7 percent from Friday's close.

The muted trading came amid a broader sell-off in stocks as investors fretted over a 3M earnings forecast that disappointed Wall Street.

The drop in MSO's stock price comes three days after a federal judge in Manhattan gave Stewart a 10-month sentence -- five months in prison and five months of home detention -- for lying during an insider trading investigation into some of her personal stock sales. The punishment was the lightest the court could give under federal sentencing rules.

In response, investors ignited a rally that saw company shares soar 37 percent Friday, to $11.81. In pre-market trading Monday, MSO stock hovered above $12 before sinking fast soon after the bell.

Monday's fall-off seemed to confirm predictions that last week's run-up in Martha Stewart Living Omnimedia stock would be short-lived. Several analysts and consultants bemoaned the lack of closure in her legal case, noting that Stewart's freedom in the short-term cannot mask the fact that her personal troubles have hurt her company and will continue to do so until they get resolved for good.

"The best thing for Martha Stewart Living Omnimedia as it attempts to win back advertisers is to have Ms. Stewart's legal issues out of the headlines," Alissa Goldwasser, a research analyst with William Blair & Company told clients Friday. "Conditions that could prolong the media frenzy will likely delay any potential turnaround for the company."

Martha Stewart's company has suffered along with its founder's legal woes. Advertisers have fled the flagship Martha Stewart Living magazine, contributing to a larger-than-expected drop in first-quarter earnings. The company is due to release second-quarter earnings next month.

For now, Stewart, 62, is not heeding any advice about keeping a low-profile. In an appearance with Barbara Walters on "20/20" Friday night, Stewart likened her court battle to the persecution Nelson Mandela suffered under South Africa's Apartheid regime. Tonight Stewart will conduct her first and only live interview on CNN's "Larry King Live."

Whether Stewart's public defiance will pay off in the end won't be known for a while. In the meantime, analysts will be paying close attention to looming measures of MSO's health.

One are second-quarter earnings, due out in August. Analysts polled by Thomson First Call are expected a loss of 32 cents a share for the current quarter, compared with a loss of 41 cents in the first quarter and a profit of 2 cents a share in the year-ago quarter.

Another key barometer will be the publishing industry's annual advertising sales season, which begins later this month and lasts through early fall. This is when publishers sign up ad deals for the coming year.

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"The company now has to prove itself," said Jack Myers, an independent media analyst and publisher of a daily industry newsletter.

It has an uphill climb. Despite Friday's run-up, company shares are trading far below their $19-$20 range of the months before Stewart was indicted two years ago.

MSO shares reached a closing price of $14 on the eve of Stewart's March 5 conviction.