Martha: Rise and Fall

04/30/2004 12:00 am EST


Jamie Dlugosch

Editor, The Rational Investor

While Martha Stewart and her court case may be overshadowing her company, value investor Jamie Dlugosch  is willing to look beyond the headlines to assess the fundamental value of the firm that bears her name. Here's his review of Martha Stewart Living Omnimedia

"Martha Steward Living Omnimedia (MSO NYSE) is the empire built by home and entertaining diva, Martha Stewart. With a singular intense focus on quality, MSO became the leader in the craze for all things that are good. The company’s fate is, for better or worse, had been wholly dependent on Martha Stewart. Unfortunately, that dependency became problematic as Martha became ensnared with the Imclone insider trading fiasco. Although she was never accused with insider trading, she was charged, and found guilty of lying to Federal agents.

"As a result, shares of MSO have been steadily falling. The momentum has slowed with Martha’s resignation from the board and now investors must anxiously wait for her sentence as most experts predict a decent amount of jail time. The rise and fall of Martha Stewart is a story that has unfolded time and time again. Regardless of her transgression, she appears to be a symbol for all that is bad with corporate America. We have a propensity to watch someone, with lots of prodding from our hungry media, fall from the top.

"Given my value-oriented investment philosophy, I am particularly interested in buying into this opportunity from the prospective that if we are good at watching someone fall into disgrace, then we are better at helping them rise from the ashes. At the end of the day, the issues with Martha will be long forgotten. It is our opinion that Martha Stewart will come storming back with a vengeance. The experience could very well make the brand even more valuable. If so, shares will not only recover but they will exceed the highs reached before her troubles began. I will buy MSO up to $15 per share and my target is $30."

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