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NEW YORK (CNN/Money) -
Martha Stewart is free...to watch the price on the stock that bears her name go down in flames, according to two research analysts.
Nearly 80 percent of the publicly traded shares in Martha Stewart Living Omnimedia have been sold short -- a bet that they will fall, now that Stewart is out of prison and ready to spend five months confined to her sprawling 153-acre estate.
The stock sank about 8 percent Friday -- after a big rally in the months before Martha's release -- while the Dow Jones Industrial average rallied to a 3-1/2 year high after a strong job report.
"The stock has a lot of downside and very little upside," said Howard Davidowitz, president of Davidowitz & Associates, Inc., a retail consulting and investing firm, noting the company again lost money for the fourth quarter and second straight year.
"Over the last year, they lost $60 million," said Davidowitz. "End of sentence. Then talk about 2005: They're going to lose their (behind).
"The advertisers are gone," Davidowitz added. "It's a question of getting them back. But getting every one of them back is priced into the stock. The stock is priced as if everything she does is magical and perfect."
Investors could be expecting Stewart to perform miracles.
Davidowitz and other analysts noted that Stewart, a caterer who turned her passion for cooking and homemaking into a business empire, has performed miracles in the past.
Stewart herself has a lot riding on how the stock performs. She owns about 60 percent of the company, a stake currently worth roughly $1 billion.
Martha Stewart Living Omnimedia (Research) stock sank well below $10 a share after her legal troubles began. But the shares started rallying last summer after Stewart decided to serve her sentence early, while she appealed her conviction on four felony counts of lying to federal investigators about her sale of ImClone stock in late 2001.
Dennis McAlpine, analyst with McAlpine Associates, said the stock price over the last year was driven by "a misconception about what's been going on in the company."
"Long term, we'll see it gradually go down, probably getting down to under $10 a share," McAlpine said.
McAlpine said that ad pages for Martha Stewart Living Magazine have plunged by more than 50 percent since peaking in 2002, while the overall magazine industry has managed modest gains in recent months.
Analysts noted that the New York-based company has about $100 million in cash and no debt, which should buffer it against hard times -- at least for now.
There are also questions over corporate leadership at the company. Stewart stepped down as CEO after her indictment in June 2003 and her successor, Sharon Patrick, was replaced by former ABC Entertainment president Susan Lyne.
Analysts said the only part of the company that has been performing well is sales of branded merchandise through Kmart Corp. (up $3.05 to $105.04, Research), though this won't make up for losses in magazine advertising.
"The strongest part of Martha Stewart Living Omnimedia is the merchandise division, which is primarily Kmart," said Richard Hastings, retail analyst at Variant Research. "That is doing very well and should continue to do well."
For more on Martha's life after prison, click here.
For full coverage, click here.
None of the analysts interviewed own stock in Martha Stewart Living Omnimedia and their firms do not have banking relationships with the company.
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