Dow Jones 10932.35 +99.32 9:52 am PST, March 4, 2005  NASDAQ 2074.41 +16.01 For info, visit access.smallcapnetwork.com S & P 500 1222.09 +11.62 Change your subscription status here Russell 2000 642.64 +4.35 VOLUME 05: ISSUE 17  Feature: Martha's Out. Stock's Out of Favor. On February 25th, and frequently on the SCBLOG, we've named some stocks we felt were overpriced traps that could hurt enthusiastic buyers who were either late or stayed too long at the party. The newest addition to the list is Martha Stewart's company (NYSE: MSO). Last year, when nobody wanted Martha's stock at $9-$11 we suggested a buy. Martha's prison rally took the stock to $37, and now even the legitimate media has bought into the 'woman wronged' schtick. CNBC is even doing nauseating wall-to-wall coverage of her release. Reality TV indeed. While we were early suggesting a sale at around $20 in September 2004 we couldn't care less. Our readers still saw a nifty 100 percent gain. We still see no reason to buy or keep the shares. And people say smallcaps have a lot of hype. The chart, very simply, looks horrendous. For those in the tech-know, the current structure is known as a double re-penetration of the 3x3 displaced moving average--in essence a break below it, then a break above it, a break below it and then down she goes. If you have the stomach for shorting or buying puts, the structure looks good. Otherwise, just sell some or all of it. Could it go higher? Sure. Do we care? No. We have to go with our gut. MSO's share price has risen further since we suggested a sale in September and we did miss some decent upside. I can live with that. What I can't live with is the current hype displacing the crappy fundamentals of the company, because even if you throw in a rosy scenario and juice up the numbers, that hype still far outweighs the reality. Would you own a stock like this? MSO's market cap is $1,74 billion. Projected revenues for 2005 and 2006 are $183 million and $212 million, respectively. That leaves us with a 2005 price to sales ratio of a weighty 9.5 times and 8,2 times for fiscal 2006. Cash on hand is $140 million--up from under $120 million in the third quarter 2004 or about $2.75 a share. And there's still no debt. That's ok news.  Most troubling are the projected earnings for 2005 and 2006, a loss of 48 cents--up from a loss of 40 cents--and a positive 4 pennies for 2006. With the shares at $34, the projected price earnings ratio is north of a whopping 850 times for 2006. Even if MSO makes 40 cents a share in 2006--ten times the consensus--the shares would still be overpriced with an 85 p/e. I think the two people who made the most money while Martha was in prison were Martha and her PR consultants. They did a masterful job of making prison seem character building. Please....  Keep the faithful, please. Don't send me mail telling me yet again Martha got a raw deal. The courts spoke, she had extremely competent counsel and if it all gets thrown out, I'll apologize. Until then, get over it. Its just business and MSO is, fundamentally, an obscenely overpriced stock. The run-up in the shares was due in no small measure to the injection of Mark Burnett--the Aaron Spelling of reality TV--into the mix. As I've said before, when the music stops for this genre or is replaced by something equally disturbing, and it will be, you want to make sure you still have a chair to sit in. Martha could suck at this. And the other thing is that apparently she is the new, compassionate Martha after her stint in the slammer. Perhaps she's lost her killer instinct. Could happen. Has before. The bottomline is this: the shares have likely priced in Burnett, Martha's contrived phoenix act, and probably two or three other corporate initiatives we don't know about yet. I wouldn't bet anything on the shares. 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