The market is taking stock of still more rumors that Microsoft is trying to buy Yahoo. (This would be a great deal, if it weren’t for management, strategic and cultural differences that would probably sink any combination.)

In the meantime, according to Jeffrey Lindsay, an analyst for Sanford C. Bernstein, Yahoo’s stock price has fallen so far that the value of the company’s cash and stock holdings exceeds its actual business, despite a bounce from the merger talk.

At $24.09, Thursday’s closing price, Yahoo has a market capitalization of $32 billion. When Mr. Lindsay looks at the company’s $2 billion in cash, along with its holdings in Yahoo Japan, Alibaba (the Chinese e-commerce firm) and other entities it doesn’t run, he comes up with a value of $13.24 a share. That leaves a value of $10.51 a share for the actual business of Yahoo, making the value of Yahoo’s core business about $14 billion, or 7 percent of Google’s $200 billion market value.

Mr. Lindsay runs through a litany of problems with Yahoo’s core business that reduce its value in his calculations. The company’s overall audience is stagnant and its share of Web searches is falling. And it is losing lucrative revenue from providing e-mail and other services to phone company broadband systems.

Mr. Lindsay is so negative on the company that he thinks it should get out of selling search advertising, chop its payroll and try to expand its Right Media Exchange, a fledgling approach to placing banner advertisements through a trading market structure.

He assesses investor sentiment as veering to the negative, reacting to the scenario that Yahoo will implode into irrelevance, as AOL has done.

We do not think that an AOL-like slide is inevitable for Yahoo, but we think management must take more robust action.

The bottom line of all this is that Mr. Lindsay reduced his 12-month price target for the stock from $32 to $28.

Mr. Lindsay says this analysis leads him to believe that a bid by Microsoft at a rumored price of $40 billion is “remote.” I’m not entirely sure this makes sense. Microsoft bought the advertising firm aQuantive for $6 billion, a price far higher than anyone would pay on a financial basis. So it is willing to spend a lot of money for what it considers to be a strategic advantage.

Kara Swisher writes that Yahoo’s management has no interest in being bought now. I suspect that’s true. But if Yahoo’s shares keep falling, and Microsoft decides it is willing to spend more for Yahoo than it is worth on paper, there could be a very interesting hostile offer down the road.