Should You Buy, Sell, or Hold Motricity?

Editor's note: A previous version of this article incorrectly stated that COO and interim CEO Jim Smith has duties with Bank of America. That is someone else with the same name. The Fool regrets the error.

Mobile data services specialist Motricity (NAS: MOTR) is limping into 2012 like a three-legged donkey with at least two arthritic knees. Shares are trading firmly in penny-stock territory at $1.03 per stub, down a terrifying 94% from last New Year's prices.

Is this a setup for a massive rebound, or is Motricity racing toward an early grave here? Let's find out.

Stop me if you've heard this one before
Motricity limped into 2011 as well. Back in February, fellow Fool Tim Beyers saw a big rebound on the horizon for an already beaten-down stock. Thanks to good reports from major customers Verizon (NYS: VZ) , Sprint Nextel (NYS: S) , and AT&T (NYS: T) , Motricity seemed prime for some nice surprises as well: "If Big Red is selling more data, it's even money or better that Motricity is involved," Tim reasoned. "Returns will follow when the Street makes the same connection."

Tim staked real money on that opinion, and 87% of poll respondents from that story were ready to follow him down the rabbit hole.

The warning signs pile up
As it turns out, Motricity didn't benefit from the telecoms' strong data revenues after all. Instead, the company kept lowering guidance and missing estimates because the smartphone boom that fueled Verizon's and Ma Bell's fortunes didn't translate into Motricity's feature-phone market. By August's second-quarter report, the company had canned its CFO and chief marketing officer, and CEO Ryan Wuerch got the boot two weeks later.

You don't see a house-cleaning sweep like that very often, and it's never good news for investors.

Sell, and don't look back
The verdict in this case is depressingly simple: Sell, stay away, and forget that you ever heard of this stock. I see very little hope for a rebound, and Motricity is eating through its debt-riddled cash balances way too fast. Chances are that this company won't live to see another summer.

The only redeeming factor here is that one of the telecoms might swoop in and buy Motricity wholesale. With an enterprise value of just $52 million, Verizon or Sprint could buy this company out of what's in the coffee collection jar from the break room. But why would they?

Tapping the mobile revolution is easy as pie these days. This free report shows you not one but three different ways to play this enormous market. Spoiler alert: Motricity isn't one of them. Grab your copy right now to learn more about the true winners in this revolution -- it's 100% free to Fools.

At the time thisarticle was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.