What happened

Shares of Pitney Bowes (NYSE:PBI) fell just over 20% in the first 90 minutes of trading on Oct. 30. That decline comes on the heels of the company's third-quarter earnings report, which, at first glance, didn't seem all that bad. However, there's more to the story here than just one quarter of earnings.

So what

Pitney Bowes' top line was up 13% year over year, which the company noted was the fastest revenue growth it has achieved in more than a decade. Third-quarter earnings of $0.07 per share under generally accepted accounting principles (GAAP) compared favorably to a loss of $0.02 in the same period of 2019. Meanwhile, the company managed to beat analyst estimates of $0.05 per share in earnings. So far you'd expect Pitney Bowes stock to be up today.  

A woman drawing a risk vs reward graph.

Image source: Getty Images.

But, on an adjusted basis, third-quarter earnings fell 66% year over year in the quarter. Meanwhile, the company's debt-to-equity ratio sits at a troubling 97%. With so much leverage on the balance sheet, Pitney Bowes doesn't have much wiggle room. That brings up another key issue: Pitney Bowes is in the middle of a massive business transition. Historically the company sold postal meters and helped customers with physical mail, a business that has been upended by the internet. Management has pivoted and its e-commerce business is growing (revenue in this division was up 47% year over year in the third quarter), but the company's historical business continues to decline. That's not a great backdrop given the debt Pitney Bowes is carrying around. So, the fact that there's negative sentiment among investors is, perhaps, not as surprising as it might at first seem.   

Further complicating things today, it was just announced that the company's CFO has been hired away by consumer goods giant Colgate-Palmolive. Not only is Pitney Bowes losing an experienced executive, but it also means a new face will be stepping into a key role at what is a pivotal time for the company. That's not a positive. 

Now what

Pitney Bowes is probably best viewed as a turnaround stock. That's not where most long-term investors should be playing. Turnarounds are best left to more aggressive types, which is particularly true here given the fragile state of Pitney Bowes' balance sheet and the turnover in its top brass.