Pitney Bowes Won't Die Quietly

Editor's note: Jim Cramer told viewers of his "Mad Money" TV show on Tuesday that Intuitive Surgical (ISRG) and Potash (POT) are two ugly ducklings set to become beautiful swans. Here's another stock with those same characteristics.

Winter Flop, Summer Flip
PBI Chart PBI data by YCharts

NEW YORK ( TheStreet) -- Commensurate to falling mercury in Wisconsin during last winter's grievously bitter cold season, Pitney Bowes ( PBI) sank to new 52-week lows at the start of 2013.

The seasons change. Along with the higher temperatures Pitney Bowes has sprung into summer, increasing over 40% off the winter lows.

The outlook for the printed stamp company has improved, even if revenue remains under pressure. The management team at Pitney has performed exceptionally under the pressure. Through cutting costs (including lots of pink slips) and net margin control, the company adapted quickly as the ground shifted under its feet.

PBI Revenue Quarterly Chart PBI Revenue Quarterly data by YCharts

I wish I could say the same for the U.S. Postal Service with the endless congressional micro-managing that prevents needed market-adapting changes. Perhaps Pitney Bowes, FedEx ( FDX), United Parcel Service ( UPS) and the USPS best illustrate the differences between private enterprise and government bureaucratic monopolies as well as anything. Only one is controlled by Congress and has a monopoly, and only one is losing money.

You can decide on the merits, but for now I will focus on Pitney. First-class mail volume declined over 30% since 2000, and the rate of decline accelerated into 2012. Have we witnessed the bottom? Maybe, but Pitney isn't sitting around crossing their fingers hoping so.

Pitney is charging ahead, morphing from a postal stamp printing company into an information management solutions company. Divesting from business operations that don't fit well with the overall vision isn't an easy task but after selling various European divisions, Pitney's management demonstrates it is willing to make the tough choices.

PBI Operating Margin Quarterly Chart PBI Operating Margin Quarterly data by YCharts

The above chart illustrates why the market is pricing Pitney 45% higher today than at the start of the year. Based on the stratospheric short interest level, many on Wall Street declared Pitney a dead stock walking. More than one out of every share in the float is shorted.

According to Nasdaq, if the shorts want to cover, it would take three weeks of current trading volume for them to close out their short positions. It doesn't take a Jim Cramer to figure out short interest this high can become explosive after a strong earnings report. Even a widely subscribed positive press release can send shares soaring.

Two recent short squeeze examples include Tesla Motors ( TSLA) and First Solar ( FSLR). Both companies traded at price multiples above Pitney Bowes and were targets of short-sellers. Both companies surprised Wall Street with positive news.

First Solar doubled in less than two months when shares climbed from under $28 to an intra-day $59 peak. Tesla Motors accelerated from $40.50 on April 9, 2013 to over $100 today. Short interest is rocket fuel for a stock that delivers unexpected terrific news. Short-sellers are considered the smart money on Wall Street for a good reason -- they usually get it right.

Pitney proved short-sellers who failed to take gains in December were wrong. If the company demonstrates to the entire market the shares are undervalued, a short squeeze above $20 is the likely next stop. The next significant resistance testing level is the 200-week moving average near $19.50.

With almost 40% of shares shorted, there is certainly enough fuel to get there if the company can light the fuse.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.