In this holiday-abridged trading week, one of the few quarterly earnings releases worth checking out is tomorrow's report from American Greetings (NYSE:AM). Beyond the company's clever timing -- as the Greeting Card Association has Christmas just beating out Valentine's Day as the top card-sending holiday -- it's a compelling case study of how to adapt in an industry seemingly earmarked for obsolescence.

Whether or not you feel like sending American Greetings shareholders a "Get Well Soon" or "Congratulations" card depends on how long you've owned a stake in the greeting card specialist. Its shares have more than doubled over the past three years, but have been halved over the past five years.

The problem with greeting cards is as simple as that batch of online greeting cards that are still resting in your computer's inbox. It's not a matter of procrastinators catching a virtual break in forgetfulness or paper cut memories; it's a matter of price and convenience. As long as companies such as Yahoo! (NASDAQ:YHOO) and Amazon (NASDAQ:AMZN) keep providing its site visitors the ability to send free e-cards, American Greetings will have an uphill battle to convince users on its sites to pay up for its premium offerings. Similar to old camera film companies such as Kodak (NYSE:EK) trying to become major players in digital photography, it's not an easy task to be weaned off the perpetual cash cow.

That's why the need to diversify is critical. American Greetings' rival Hallmark has expanded into everything from retail gifts to television content programming. This year, it even teamed up with Time Warner (NYSE:TWX) to produce a magazine.

American Greetings isn't going out without a fight, either. While greeting cards remain its flagship business, the company is putting out everything from candles to educational products to, believe it or not, Magnivision reading glasses.

With the stock trading at just 12 times this fiscal year's profit projections, there is still more upside if American Greetings continues to move forward in its expanding product lines. Back in September, the company guided investors to expect fiscal third-quarter earnings to come in between $0.68 and $0.73 a share. So, which card will you ultimately send? Tomorrow knows.

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