Judging Martha Stewart the Stock

MacKay does not own shares of Stewart's company, and Morningstar doesn't do any investment banking.

That rebuilding could prove tough because the competition for Martha Stewart's audience has increased. Magazines such as Real Simple and Budget Living are targeting the company's core readership, giving an option to media buyers.

"The advertisers are saying they don't need Martha Stewart anymore," said McAlpine.

Meanwhile, the company is involved in a potentially costly battle with Kmart(KMRT Quote). Under a marketing agreement, Martha Stewart Living offers branded home products through the discount chain. Kmart pays Stewart's company a royalty on the products sold. But Kmart, which has been battling slumping sales due to a recently completed bankruptcy filing and store closures, has sued Martha Stewart Living to reduce the minimum royalty it owes this year.

Even if the operational issues are resolved advantageously, a guilty verdict could be all she wrote for Stewart's company.

"If that happens, I think the company implodes," said Scott Rothbort, contributor to Street Insight, a sister site of TheStreet.com. "You can't have your only product in jail."

Of course, not everyone's a pessimist.

Believers in Martha Stewart Living's stock have blamed much of the company's trouble on the negative publicity and uncertainty surrounding the trial, which they believe is based on weak charges and reeks of sexism. Bulls argue that the advertising and circulation decline are temporary setbacks. Once Stewart is exonerated, advertisers and subscribers will return and the company will rebound.

Investors may already be expecting that outcome. On Friday, after the judge in Stewart's case threw out the most serious charge against her, securities fraud, the stock spiked $1.43, or 10.9%.

And Friday was not unusual. The bull case has been winning out of late. Although shares of Martha Stewart Living fell 61 cents, or 4.2%, to $13.92 on Monday, they are up 41.3% since the beginning of the year.