Domestic diva Martha Stewart may be back home but shares of her company took a drubbing Friday, tumbling more than 9 percent following the lifestyle trendsetter’s release from prison.
Martha Stewart is no longer chief executive of Martha Stewart Living Omnimedia Inc., a company whose fortunes have been closely linked to its founder, but she remains one of the most famous businesswomen in the United States.
Shares in the company doubled in the five months that she was behind bars, in part on investor optimism that business would improve after Stewart’s legal woes were resolved.
The stock, which has been extremely volatile over the past year, was down $3.20, or 9.4 percent, to $33.75 on the New York Stock Exchange, after touching as high as $37 earlier in the day. Shares climbed to a more than five-year high of $37.45 in February. The slump in Martha Stewart Living Omnimedia stock came amid a strong rally on Wall Street which saw the Dow Jones industrial average surge to a 3 1/2-year high,
“There is just a huge amount of media attention” focused on Stewart’s release, said Dennis McAlpine, an independent stock analyst who has a “strong sell” rating on Omnimedia shares. “There is no other news other than that (Stewart) is getting out of jail.”
Shares are up more than 300 percent since Stewart was convicted a year ago of lying to federal investigators about a personal stock sale. Her early March release from prison had been widely anticipated.
Industry analysts have been saying for months they believe the stock is overvalued. The media and merchandising company posted its second consecutive annual loss in 2004, hurt by diminished advertising at the flagship Martha Stewart Living magazine, and more losses are expected in full-year 2005.
Analysts say the stock is subject to volatile swings, often based on market rumors, because many speculators have made bets on the stock without paying attention to the company’s fundamentals.
Also, an estimated 80 percent of the publicly traded shares have been sold short, adding to the stock’s volatility. Short sellers make bets stock prices will fall, but they can be forced to buy stock cover their positions after a share rises instead of declining as they anticipated.
Stewart stepped down as head of the company in mid-2003 after her indictment, but she continues to own a 60 percent stake in the company and is the creative muse behind the company’s magazines, TV programs and line of housewares and furniture.
Omnimedia had been trying to distance itself from its founder, stripping Stewart’s name off the magazine Everyday Living and downplaying it on Martha Stewart Living. But Stewart is expected to make something of a comeback with a new daily lifestyle television show and as the star in a prime-time spinoff of NBC reality show “The Apprentice.” (MSNBC is a Microsoft-NBC joint venture.)
Stewart was released from a West Virginia prison early on Friday. She is to serve another five months in home confinement at her estate in Bedford, New York, in affluent Westchester County north of Manhattan.
