Stewart, who built a media empire on home decorating tips, sold nearly 300,000 shares of Class A common stock Tuesday, according to a form filed with the Securities and Exchange Commission (search) Thursday.
"I would tend to believe that her unloading (this amount) of shares is a result of her believing that the stock is fully valued," said Gary McDaniel, a Standard & Poor's stock analyst who has a "strong sell" rating on Martha Stewart Living.
"I would be surprised if we don't next week see a filing that says she sold a little bit more than this," he said.
The homemaking entrepreneur, who is serving a 5-month prison term for lying to investigators about a personal stock sale, remains the company's controlling shareholder through her ownership of special voting stock.
The stock hit a more than four-year high Thursday, climbing to as high as $33.49 at one point before closing at $29.70. The shares are up more than 70 percent since Stewart began serving her prison term on Oct. 8, and are up about 230 percent from the stock's 52-week low in May.
Shares of Martha Stewart Living slid $2.04, or 6.8 percent, to $27.70 Friday afternoon on the New York Stock Exchange.
Some Wall Street analysts have been warning investors for months that they believe the shares are overvalued.
"You have a lot of momentum players," said Dennis McAlpine, a stock analyst who runs research firm McAlpine Associates. "When you had a break in the stock yesterday, people said, 'let's take our money and run,' and I think that's happening again today."
The company did not immediately return a call seeking comment.
Martha Stewart Living's second largest shareholder and its former chairman, hedge fund manager Jeffrey Ubben of ValueAct Capital Partners, last month unloaded more than half of his stake in the company. Ubben sold more than 2 million shares for nearly $39 million, according to regulatory filings.
Stewart controls about 60 percent of the company she founded. Her stake is worth about $825 million at the stock's current levels, according to the calculations of McDaniel, the Standard & Poor's analyst.
He added that "when people see a founder or any inside executive selling, it tends to make them concerned about any upside potential for the stock."
Stewart was convicted in March of conspiracy, making false statements and obstruction of agency proceedings stemming from her suspicious sale of stock biotech company ImClone Systems Inc. (IMCL) in late 2001.
After her expected release from prison in March, she is to serve another five months in home confinement.