Martha Stewart Bulls Embrace the Endgame

Indeed, while the company is expected to post a fourth-quarter profit, it likely won't be enough to pull full-year results into the black. In addition, analysts project the company's sales will be down sharply from the fourth quarter a year earlier.

The problem is that American consumers are fickle, said Scott Rothbort, president of LakeView Asset Management and a contributor to TheStreet.com's professional investing site, Street Insight. Once they stop subscribing to a magazine or change television viewing habits, they don't switch back. Even if Stewart's exonerated, she's going to have a hard time winning back the fans that have dumped her, said Rothbort, who is short the stock.

"Very, very few celebrities are able to bounce back," he said. "One day you're on top and the next day you're not."

Company bulls, conversely, have long argued that the Martha Stewart brand has residual value and that Stewart has a loyal following. They also note that the company has about $4.50 a share in book value. Even with its recent rise, the company is trading at a modest price-to-book multiple compared with its peers, they say.

"Our stock recommendation is based on the value of [the company's] customer group and the opportunity to purchase the stock at a depressed price during this period of uncertainty," McAdams Wright Ragen analyst Jamelah Leddy wrote in a recent note. (McAdams Wright Ragen does not have investment banking business with Martha Stewart Omnimedia.)

Despite obvious risks, many investors have reached similar conclusions.

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