NEW YORK (CNNMoney.com) – Martha Stewart Living Omnimedia is one of those companies that everyone loves to talk about ... even though the stock has deflated like a soufflé in recent months.

Remember how much buzz Martha Stewart's stock was getting at this time last year? Shares were trading around $35 and the hope was that Martha's imminent release from prison would serve as a huge boost to the company's fortunes.

Ad sales and circulation are on the upswing for several Martha Stewart Living Omnimedia publications, most notably at the flagship magazine.

Not a good thing: Shares of Martha Stewart Living Omnimedia have plunged during the past year.

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But ironically, now that Martha is a free woman again, shares of her namesake company have been handcuffed. The stock has been cut in half over the past year and, at about $17, trades just a touch above its 52-week low.

The stock got away ahead of itself last year following Martha's release from jail and that attracted a significant amount of short sellers, investors who bet that a stock will go down. Disappointing results from the company also didn't help.

Martha Stewart Living Omnimedia (Research) will report its fourth quarter results next Wednesday. And investors must be hoping that the media company will be able to give some tasty guidance for 2006.

Analysts currently expect the company to report a full-year profit of 4 cents per share this year, after reporting losses in 2003 and 2004. (The company is expected to report another full-year loss for 2005 when the fourth-quarter numbers are released.)

So it seems safe to say that if Martha Stewart Living Omnimedia warns of another annual loss in 2006, Wall Street will not be very forgiving. Red may be a nice color for tablecloths and party napkins...but not for ink.

Still, there are actually some signs of hope. Trends at the company's publishing business, most notably at the flagship Martha Stewart Living magazine, are encouraging. The publishing business accounts for more than two-thirds of Martha Stewart Living Omnimedia's overall sales.

In the third quarter, the company reported that ad revenues for the Martha Stewart Living publication were up 72 percent and circulation increased 15 percent. That helped lead to a 44 percent increase in overall magazine ad revenues (the company also publishes Everyday Food and Body + Soul) and a 12 percent increase in circulation.

So it appears that both readers and advertisers have moved on and that there hasn't been a lasting negative effect on the company's publishing business due to Martha's perjury conviction in 2004 for conspiracy, obstruction of justice and making false statements related to her sale of shares of biotech firm ImClone Systems (Research).

"Overall, her titles are extremely strong, not only on the newsstand but with subscriptions as well. She just has an amazing brand," said Andrew Degenholtz, president of ValueMags, a magazine/newspaper subscription agency.

Degenholtz adds that this is particularly impressive since the entire magazine industry is experiencing some difficulties due to declining circulation and eroding advertising rates.

Sure, Martha's version of "The Apprentice" on NBC was a ratings flop and her daily talk show, "Martha", which launched in September, has not done as well as some had hoped. The company had no financial stake in "The Apprentice," though, and the talk show has been renewed for a second season.

Still, investors shouldn't focus too much on the TV business, since that accounted for just 7 percent of the company's total revenues.

Yet, the stock may still not be a bargain just yet. After all, the company is only expected to report a profit of 4 cents per share this year. Based on that estimate, shares trade at the nosebleed valuation of 425 times earnings.

Shares were trading at about the same level after the company reported third-quarter earnings in October. And at that time, Bear Stearns analyst Michael Meltz wrote in a research report that although "management continues to do a good job at revitalizing Martha Stewart Living Omnimedia...we still believe the stock is overvalued."

And short sellers are still actively betting against Martha. As of mid-January, 7 million shares of Martha Stewart had been sold short. That's about 14 percent of the company's total outstanding shares, a relatively high amount.

Finally, there are still concerns about sluggish merchandise sales. Many investors are hoping that the company's current merchandising agreement with Kmart winds up getting expanded to include Sears stores. Sears and Kmart merged last year to create Sears Holding Corp (Research). There are also questions about whether or not the company can finally get its online commerce and content operations to post a profit this year.

The company has made some significant deals on the merchandise and licensing side lately that could boost sales. It will collaborate on the design of model homes with construction company KB Home (Research) this year. And a Martha Stewart channel on Sirius Satellite Radio (Research) recently launched.

This may not be enough to convince skeptics of the company that the stock is worth buying just yet. But over time, as long as the magazine publishing business continues to thrive, shareholders of Martha should wind up realizing that their investment in Martha Stewart Living Omnimedia is in fact a good thing.

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